Section 179 of the IRS tax code allows businesses to deduct the full purchase price of qualifying equipment purchased or financed during the tax year. That means that if you buy or lease a piece of qualifying equipment, you can deduct the full price along with the normal years’ depreciation, from your gross income.  This tax incentive was created by the U.S. government in an effort to encourage businesses to buy equipment and invest in themselves.

Check out the full details of Section 179 here.

So what does this mean for businesses?  It means that with the tax incentives of Section 179 coupled with historically low interest rates, now makes it the opportune time to finance or lease equipment.  Business owners can deduct the full purchase price of the equipment from their gross income while making affordable monthly payments, subject to certain limitations.   With the Fed possibly set to increase interest rates this December as well, it is important to take advantage of this situation while it lasts.

Is your business planning on taking advantage of the Section 179 deduction this year?   Comment below!

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Bonus Depreciation was extended back in 2010 to assist businesses recovering from the Recession. In 2011, businesses could depreciate up to 100% of qualifying new equipment which then dropped to 50% in 2012. The deduction was set to expire at the end of 2012.

Eric Savitz reported for Forbes in “How the Fiscal Cliff Deal Boosts the Tech Sector” that Bill Whyman, ISI Group technology analyst, wrote in a brief research note, “We believe the major impact will be improved business confidence, leading to greater willingness of business to invest their record cash hordes. Both these measures also improve cash flow, and on the margin have a positive impact on spending.”

The tech sector isn’t the only sector pleased with the extension of bonus depreciation. Speaking of the passage of bonus depreciation, Dave Thompson, president of TEC Equipment Inc, told Transport Topics, that “not everybody was prepared to buy and now they might. That depreciation will be a bonus; 100% is better, but 50% is pretty nice.”

According to the IRS publication, “Bonus Depreciation and Increased Section 179 Deduction under the American Recovery and Reinvestment Act”

The bonus depreciation provision generally enables businesses to deduct half the cost of qualifying property in the year it is placed in service. You may be able to take an additional first year special depreciation allowance for certain qualifying property (defined below). The allowance is an additional deduction of 50 percent of the property’s depreciable basis (after any section 179 deduction and before figuring your regular depreciation deduction).

Property that qualifies for this special depreciation allowance includes the following.

• Tangible property depreciated under the modified accelerated cost recovery system (MACRS) with a recovery period of 20 years or less
• Water utility property
• Off-the-shelf computer software
• Qualified leasehold improvement property

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1. Your taxes are going up. Although the approved deal raises tax rates only on individuals with income over $400,000 and families with income over $450,000 (their top tax rates will increase to 39.6%, up from 35% in 2012), the deal did not save the Payroll Tax Holiday. Therefore, the payroll tax immediately rises back to its 2010 level resulting in a rate that increases from 4.2% in 2012 to a new rate of 6.2%. The Tax Policy Center reports that the “average federal effective tax rate will be 21.7 percent and the average increase is $1,257.”
2. Millions of taxpayers will be spared from the Alternative Minimum Tax. Time Magazine reports, “According to one GOP estimate, 28 million families would have had to pay an average of $3,400 in extra taxes this year without the AMT fix. About four million taxpayers owed the AMT in 2011, up from about 1.3 million in 2001, according to the Tax Policy Center.”
3. Phase-out of personal and dependent exemption deductions for married taxpayers with an AGI of $300,000 or more and single taxpayers with an AGI of $250,000.
4. Phase-out of itemized deductions if your AGI exceeds $250,000 for single taxpayers and $300,000 for married joint-filing taxpayers.
5. The American Opportunity Tax Credit, the Child Tax Credit and the Earned Income Tax Credit all survived and will be on the books for the next five years.
6. Section 179 has been increased retroactively for 2012 and 2013. With the new deal in place, Section 179 has been increased retroactively for 2012 from $139,000 back to $500,000. The new law extends the $500,000 limit through 2013, and pushes the $25,000 cap to 2014. Section 179 is available only to companies with total capital expenditures for the year under a certain threshold — $2 million through 2013 and $200,000 starting in 2014.
7. 50 percent bonus depreciation for capital expenditures has been extended through 2013.
8. The Research and Development Tax Credit has been renewed retroactively for 2012 and “prospectively for 2013.”

The post 8 Things to Know about the Fiscal Cliff Deal and Your Pocketbook appeared first on TEQlease Capital.

Section 179 Deduction. If you own a small or midsize business and acquired assets for your business in 2011, you may be eligible to deduct up to $500,000. For more information about this deduction, you can read our recent post “End of Year Tax Tips” as well as the IRS publication “Bonus Depreciation and Increased Section 179 Deduction under the American Recovery and Reinvestment Act”.

Reinvested Dividends. Although this isn’t a deduction or tax credit, according to Kiplinger this is an “important subtraction that can save you a bundle.” If your mutual fund dividends are automatically used to buy extra shares, your tax basis in the fund is increased with each new reinvestment. Kiplinger advises that investors be careful not to forget including the reinvested dividends in your tax basis—failing to do so may result in double taxation of the dividends.

Additional Bonus Depreciation. If you are a business owner, don’t forget you can write off 100%of qualifying new (not used) assets—including most software, vehicles, and equipment in general.

American Opportunity Credit. Do you have a child in college? Then don’t forget to claim the higher education tax credits. Under the credit, taxpayers can get a reduction in their tax bill of up to $2500 per student provided the tax filers have an adjusted gross incomes of less than $80,000 a year (if single) or $160,000 (if they file jointly). An eligible family with two kids in college could get a tax credit of $5,000. Best part about the credit is that it covers all four years of college. In order to get the credit, you will need to fill out IRS form 8863.The tax credit is set to expire at the end of 2012.

Student Loan Interest.  If you are paying back your child’s student loan, and your child is no longer a dependent, your child is eligible to deduct up to $2500 of student loan interest you paid. However, parents can’t claim the interest deduction since they are not liable for the student loan debt.

Medicare Premiums for Self Employed. If you own your own business and are qualified for Medicare, you can deduct the premiums for Medicare Part B and Medicare Part D as well as supplemental Medicare (medigap) policies. According to Kiplinger, “you can’t claim this deduction if you are eligible to be covered under an employer-subsidized health plan offered by your employer.”

Retirement Accounts. Taxpayers have till April 17, 2012 to set up a new IRA or add to an existing IRA and have it count for your 2011 tax return.

Small Business Health Care Tax Credit. Small businesses that pay at least half of your employees’ health insurance premiums may be eligible for a tax credit of up to 35 percent of the premiums paid. You can find more information at the IRS web site.

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Below are four tips from the above articles we believe are worth investigating.

Section 179 Deductions. According to Bill Bishoff, “For tax years beginning in 2011, eligible small and medium-sized businesses can immediately write off up to $500,000 of qualifying new and used assets—including most software, certain “heavy” vehicles, and equipment in general.”

100% First Year Bonus Depreciation. Bishoff also reports that “for calendar year 2011, business taxpayers can write off the entire cost of qualifying new (not used) assets—including most software, vehicles, and equipment in general.

Assets, for either the Section 179 deductions or first year bonus depreciation, must be placed in service by 12/31/2011 to be eligible, according to Bishoff.

Withholding. The Wall Street Journal recommends that if you received a big refund last year you might consider adjusting your withholding for the rest of the year. Kiplinger offers an easy to use withholding calculator at http://kiplinger.com/tools/withholding/

State sales-tax deduction. According to the Wall Street Journal article, “More Year-End Tax Tips”, the state sales tax deduction benefit ends at the end of 2011. According to the WSJ, the deduction “allows an itemized deduction for state sales taxes in lieu of state and local income taxes. The decision to take it is easy for residents of states without income taxes, such as Texas and Nevada. But it might also work for people in areas with low-income taxes who also had a large purchase such as a car, boat or engagement rings.

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