Below is an article written by Engrave-A-Crete’s CFO, Faron Adamson.
Year-end tax planning is upon us and the income tax laws are very favorable if you have trade or business income for 2009. Wages are also considered trade or business income for the purchse of this deduction.
You can purchase equipment and instead of taking depreciation over 5-7 years, you can now offset trade or business income with up to $250,000 of Code Section 179 deduction in the current year.
Typically, if property for business has a useful life of more than one year, the cost must be spread across several tax years as depreciation with a portion of the cost deducted each year.
But there is a way to immediately receive these income tax benefits in one tax year. The provisions of Internal Revenue Code Section 179 allow a sole proprietor, partnership or corporation to fully expense tangible property in the year it is purchased.
Section 179 limits. The maximum section 179 expense deduction you can elect for qualified section 179 property you placed in service in tax years that begin in 2009 remains at $250,000.
The government is willing to allow larger deductions in the current year if you help stimulate the economy with purchase of equipment. I would rather purchase equipment and reduce my check for tax estimates and balance due, than to pay money out in taxes. I would still have the equipment, and the tax money is gone.
The above example is for a taxpayer in the 35% tax bracket, but all other tax rates apply accordingly. You may also save state income tax as well depending on the laws in your residence state.
See your accountant for a firm answer of how much an equipment purchase would actually cost you, after the tax effect. You might be amazed at how the government actually helps pay for your tools and equipment purchases.