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Tax Tip of the Week
For the week of
April 15, 2002

Write off business equipment purchases faster under the new law

Businesses received a new tax break from the economic stimulus package recently signed by President Bush. Under the new law, businesses can write off the cost of certain new equipment purchases and property improvements more quickly than previously allowed.

When you buy machinery or equipment for your business, you can write off or depreciate the cost over the useful life of the asset. There's also a special tax break, called the Section 179 deduction, that allows small businesses to write off a certain amount of equipment costs in the year of purchase. Now the new law adds another option for businesses called "bonus" depreciation.

Take "bonus" depreciation. The new 30% bonus depreciation provision applies to most office furniture and software, most machinery and equipment purchases, and certain property improvements placed in service after September 10, 2001, and before September 11, 2004. Only new (not used) property is eligible for bonus depreciation.

Here's an example: Say you bought a new $100,000 machine on October 15, 2001. You can write off $30,000 (30% of the cost) in 2001. This is in addition to any Section 179 depreciation taken and the regular first-year depreciation deduction. If you're in the 30.5% tax bracket for 2001, the bonus depreciation will reduce your taxes by $9,150.

Amend your 2001 income tax return. If you filed your 2001 income tax return before you became aware of this new law, you can amend your return to apply this new break to eligible purchases made after September 10, 2001.

For details about the new law or for assistance in preparing or amending your income tax return, give us a call. We are here to help.


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