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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Section 179 Deduction. If you acquired assets for your business in 2012, you may be able to deduct up to $139,000 of the cost of qualifying new and used business equipment placed in service in 2012.The Section 179 deduction is scheduled to drop significantly to just $25,000 in 2013 unless Congress intervenes. In 2011, the deduction was $500,000 of qualifying new and used assets.  Keep in mind, your business must turn a profit in 2012 in order to take advantage of the deduction. You can read more about our Section 179 advice here.

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.

American Opportunity Credit. If you have a child in college then make sure you understand whether the American Opportunity Credit applies to you. 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 15, 2013 to set up a new IRA or add to an existing IRA and have it count for your 2012 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.

Storm Damage Tax Breaks. If you sustained property damage this year from natural disasters such as hurricanes, floods, blizzards, tornadoes and earthquakes, your losses may be deductible if they are not reimbursed by insurance reports Joy Taylor for Kiplinger. However, to claim the deduction, if your property is insured you must file a claim before taking the deduction. Kiplinger created a calculator to help figure out your storm damage deduction.

Baggage Fees. Did you travel on business in 2012? If you are self-employed you may be able to deduct these fees. Make sure to track these fees and add them to your deductible travel expenses.

Home Energy-Saving Credit. This credit is still available contrary to what many taxpayers may think. While it is true you can no longer get a credit for windows, doors, air conditioning, and insulation, you still can get a 30% refund of the cost of “installing qualified residential energy equipment, such as solar hot water heaters, geothermal heat pumps and wind turbines” reports Kevin McCormally for Kiplinger.

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Essentially, in both his post and in the TEQlease news release, Lockwood argues that “It never makes sense to base important decisions such as a business expansion or the acquisition of new equipment exclusively on tax incentives. Instead we recommend businesses weigh anticipated efficiencies, whether competitors have gained an advantage with newer equipment, and the availability of equipment with added capabilities as factors which are drivers for acquiring equipment.”

Lockwood recommends that businesses consider the following before making any year end equipment decisions.

• History. In both 2008 and 2010 businesses had to wait to see if Congress would extend 179 deduction benefits and in both instances Congress did. However, Congress extended the 2010 deductions in 2011, not by the end of the year. The effect of the law was made retroactive to 2010. Most likely it will be unknown in 2012 what the law changes will be, if any; and the outcome will not be clear until sometime in 2013. Although there is uncertainty as to what Congress will do and when, by contrast today businesses do know what can be depreciated and deducted in 2012 and can act accordingly now.
• Math. Before making a decision on any equipment or plant acquisition, businesses need to make sure they understand the economics. Meet with your tax advisor now and determine whether deferring a purchase may have an adverse tax impact. Run separate tax scenarios with your advisor including one scenario based on 2012 deduction amounts, a second based on the 2013 deduction amount and a third with pre-Bush Section 179 depreciation allowances.
• Credit. Make sure your business credit is in good shape before deciding on leasing or financing any equipment. In order to secure the best terms, you need to demonstrate your business has a positive cash flow, manageable debt load, positive payment history, and management can demonstrate sound business judgment. If your business credit is not in good shape, now is probably not the time to finance or lease equipment regardless of the deduction.
• Timing. In order to take advantage of the Section 179 deduction in 2012, businesses must have the equipment in place and operational by December 31, 2012. One day later and you may revert to the maximum $25,000 deduction for 2013.
• Indecision. This can be the death knell for many businesses. Businesses that are stuck in a holding position while they wait for Congress may be missing important opportunities.

You can read the entire press release here.

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