If you’ve been thinking of purchasing new IT equipment, 2011 could be the year to do it. An increase in the Section 179 Depreciation Deduction Revenue Code increased the deduction limit in 2011 to $ 500,000 for assets up to $ 2 million and now includes purchases on software. This deduction applies to most equipment your business will purchase, finance or lease so it pays to do your homework on how much spending in 2011 and claiming on Section 179 can save your business.
This means that your business could deduct the total cost of certain purchases on equipment one time rather than having to depreciate it over time. This can have huge tax advantages because large equipment purchases can significantly reduce your tax obligation. Here is an example of the potential savings on a purchase of $ 50,000 for new equipment:
- Original cost of equipment: $ 50,000
- Assumed tax bracket: 35 percent
- Total first year deduction: $ 50,000
- Tax savings on equipment purchase: $ 17,500
- Lowered new cost of equipment after tax savings: $ 32,500
NOTE: If you wait until 2012, the limit on the Section 179 deduction will decrease to only $ 125,000 for assets only up to $ 500,000. More information on Section 179 can be found at Section179.org or by speaking with you tax advisor.