Section 179 Decoded

Section 179 of the IRS tax code allows businesses to deduct the full purchase price of qualifying equipment and/or software 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 PURCHASE PRICE from your gross income.


The purpose behind Section 179 - to motivate the American economy (and your business) to move in a positive direction. For most businesses (adding total equipment, software, and vehicles totaling less than $139,000 in 2012), the entire cost can be written-off on the 2012 tax return.

The total amount written off ($139,000 in 2012), and limits to the total amount of the equipment purchased ($560,000 in 2012). The deduction begins to phase out dollar-for-dollar after $560,000 is spent.

All businesses that purchase, finance, and/or lease less than $560,000 in new or used business equipment during tax year 2012 should qualify for the Section 179 Deduction. If a business is unprofitable in 2012, and has no taxable income to use the deduction, that business can elect to use 50% Bonus Depreciation and carry-forward to a year when the business is profitable.

The most important difference is both new and used equipment qualify for the Section 179 Deduction. Bonus Depreciation covers new equipment only. 

The equipment, vehicle(s), and/or software must be used for business purposes more than 50% of the time to qualify for the Section 179 Deduction. Simply multiply the cost of the equipment, vehicle(s), and/or software by the percentage of business-use to arrive at the monetary amount eligible for Section 179.

2012 Deduction Limit = $139,000 For new and used equipment, as well as off-the-shelf software.

2012 Limit on equipment purchases = $560,000 This is the maximum amount that can be spent on equipment before the Section 179 Deduction available to your company begins to be reduced.

Bonus Depreciation = 50% This is taken after the $560k limit in capital equipment purchases is reached.   Bonus Depreciation is available for new equipment only. Bonus Depreciation can also be taken by businesses that will have net operating losses in 2012.

Contact us for a bid on your capital purchase before year end.   Don’t miss out on Section 179 deductions and Bonus Depreciation 801 816 0800

Time To Take Advantage of Deductions!

Using Section 179 and/or Bonus Depreciation with an Equipment Lease or Equipment Finance Agreement might be the most profitable decision you make in 2012.

Why? Because the amount you deduct will exceed your cash outlay for 2012 when you combine (i) a properly structured Equipment Lease or Equipment Finance Agreement with (ii) a full Section 179 deduction. It is a bottom-line enhancing tool (plus, you get the new equipment and software you're adding to your business).

Also, the '$179 bonus per $10,000 financed' is available thru 12/31/2012. This means that you (a) get your equipment, vehicles, and/or software now, (b) get to take full advantage of the Section 179 deduction in 2012, and (c) get Section 179 bonus cash as well.

Leasing and Section 179

Did you know that your company can lease equipment and still take full advantage of the Section 179 deduction? In fact, leasing equipment and/or software with the Section 179 deduction in mind is a preferred financial strategy for many businesses, as it can significantly help with not only cash flow, but with profits as well.


The obvious advantage to leasing or financing equipment and/or software and then taking the Section 179 Deduction is the fact that you can deduct the full amount of the equipment and/or software, without paying the full amount this year. The amount you save in taxes can actually exceed the payments, making this a very bottom-line friendly deduction (you are reading this correctly; in many cases, the deduction will actually be profit).

Companies to lose equipment-finance tax breaks in 2012

Two generous tax breaks small-business owners received during the recession are going to shrink dramatically in 2012. That makes year-end tax planning more important than usual.

The changes affect the deductions for purchases of equipment. One is called the Section 179 deduction, named for a provision of the Internal Revenue Code. The other is called bonus depreciation. Congress approved the breaks to make it easier for small businesses to expand and hire workers. Although the economy is still slow, the breaks are being scaled back.

Ed Smith, a tax partner at the accounting and consulting firm BDO in Boston, says he's talking with clients about whether it makes sense to buy equipment before the changes take effect.

"Understand that we're not going to have this deduction in the next couple of years," he said.

The Section 179 deduction allows a small business to deduct upfront rather than depreciate the cost of equipment, such as computers, vehicles, machines in manufacturing, office furniture and sheds.

The deduction for 2011 is $500,000. In 2012, it will drop to $125,000. And in 2013, it's expected to fall to $25,000 — the amount it was back in 2002.

Bonus depreciation allows small businesses to take a deduction for equipment expenses beyond the amount allowed under Section 179. For 2011, the bonus depreciation is 100 percent. The maximum that can be deducted under the two deductions combined is $2 million. In 2012, bonus depreciation drops to 50 percent.

Under normal depreciation rules, the cost of equipment is deducted over a number of years according to a formula set by the IRS. So the Section 179 and bonus depreciation provisions have given small businesses accelerated tax savings.

You can learn more about the deductions in IRS Publication 946, "How to Depreciate Property." It goes into detail about the deductions and the regulations that govern how they can be taken. For example, the Section 179 deduction can't be used for your new heating and air conditioning unit. But that equipment can be depreciated.

It's also a good idea to discuss your plans with an accountant or tax attorney.

Changes in the tax law shouldn't be the biggest reason for buying equipment. Deductions aren't worth it if you're wasting your money on something your business doesn't need. But if you've been debating whether to buy tablet computers for your employees or install manufacturing equipment in 2011 or in 2012, it might make sense to move the purchase into this year. If you can get a better price than you would next year, that's another reason to buy now.

A big caveat: The equipment has to be up and running by Dec. 31. You can't order a new server or drill press this year, have it delivered in January and still take the deduction. You have to be able to use it — which means it needs to be installed — by the end of the year. However, it's OK if you don't pay for the equipment until next year, or if you're going to take several years to pay it off.

Something else to think about is whether you want to take advantage of these deductions now. You're not required to use Section 179 and bonus depreciation. In fact, you need to elect to take a Section 179 deduction when you file IRS Form 4562, "Depreciation and Amortization."

Depending on what your profits look like this year, and what they're likely to be in the coming years, you might prefer to use regular depreciation. So you might want to postpone your purchase until next year.

Smith says the money owners will save on their taxes from Section 179 and bonus depreciation can help them pay for the equipment they've bought. But using these deductions will eliminate any tax savings you would have had from depreciating equipment over time. Smith points out that when equipment is depreciated under regular rules, the tax savings from that can be used to cover principal payments if the equipment was financed. And the interest on financing is deductible.

Again, it's a good idea to consult a tax professional to decide which approach makes the most sense for your business. Source http://www.modbee.com/2011/10/26/v-print/1919770/tax-breaks-on-business-equipment.html

IT IS TIME TO MOVE ON YEAR END TAX ADVANTAGES!

You do not want to let the current Tax Breaks pass you by, allow Mazuma Capital to show you how to take advantage of these Tax Breaks in 2010.

Code Section 179 Expensing-
A qualifying taxpayer can choose to treat certain property as an expense and deduct it in the year the property is put into service, rather than depreciating it over several years.  The Small Business Jobs Act of 2010 increases the maximum deduction an eligible taxpayer may elect to claim to $500,000.  The qualifying property cap has also been raised to $2 million and will phase out, dollar-for-dollar, until the qualifying property cost exceeds $2.5 million.
Bonus Depreciation you don’t want to miss!
The Act also extends, through December 31, 2010.  This means you may take a 50% first year bonus depreciation deduction for qualifying property purchased and placed into service in 2010.  The real bonus- the depreciation deduction can be used in addition to the Section 179 deduction.
Now, more than ever, the financing of your equipment should be top of mind.  Contact Mazuma today and see how equipment financing can be a powerful tool for your business.
Mazuma Capital specializes in providing customized equipment lease financing solutions to businesses. Mazuma Capital is committed to delivering superior service and competitive products at the lowest possible cost. We work with companies of all sizes across all industries to craft custom leasing solutions. From short economic useful life equipment such as telephony and computer systems to vital revenue generating equipment such as heavy machinery and medical equipment.
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info@mazumacapial.com
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How To Determine The Best Approach For Financing Your Equipment

If your company is looking to expand, upgrade or just keep operations running smoothly, having the right equipment financing solution can affect your overall financial position. Financing is available for all sizes of equipment acquisitions, from technology upgrades to heavy equipment such as mining equipment or yellow iron. When seeking out an equipment financing source, it’s important for businesses to be prepared.

What are the first things to consider when financing equipment?
Look at your company’s capital position to determine what the right financing option is. Future cash flow should also be a consideration, as financing may affect the cash flow of the company both in terms of the productivity the equipment may provide and the required payments. It is also a good idea to consult with your company’s accountant to help determine the best option available for the business.
Before acquiring equipment, evaluate the value that the equipment is likely to bring your business. Business leaders then need to decide what financing product makes the most sense for the company, whether it is to lease the equipment, obtain a loan or use cash to purchase. Each option has its benefits.
A lease, for example, typically has little to no out-of-pocket expense up front, whereas a loan may require a down payment or equity injection into the equipment. Business leaders should also consider what impact a lease or loan will have on the company’s balance sheet. Some leases are off-balance-sheet financing, so the lease payment shows as an expense on the income statement rather than a liability on the balance sheet. If leased, the asset is not carried on the balance sheet either. This can be helpful for a company that has to comply with leverage or debt covenants because these ratios remain unaffected with a lease. Leases can also provide a company with more flexibility regarding the equipment. Some lease structures can include options to return the equipment at the end of the lease, upgrade the equipment, purchase the equipment, or renegotiate the lease. This can allow a company to keep up to date with changes in technology and may provide a competitive advantage in the market.

Can multiple pieces of equipment be financed?
Many business owners want the convenience of a single transaction covering multiple items instead of having separate transactions for various pieces of equipment. Equipment can be combined into a single transaction based on the equipment types, reasonable usefulness, or life. For example, if two pieces of equipment are being acquired, one with a useful period of 10 years and the other a useful period of five years, financing may be structured for seven years to combine the equipment and provide the convenience of one note to the borrower.

When should companies apply for equipment financing?
You should begin to explore financing options as soon as you think that you may need to acquire any new or used equipment. For a company that is expecting to grow and is forecasting an equipment need at a later point and time, equipment lines of credit may be a smart option to have in place in order to provide flexibility to purchase the equipment more efficiently on your own schedule.

Are there special interest rates or payment plans available for equipment financing?
In some cases, a company may obtain financing with no payment due for a period of time, designed to allow the company to get the new equipment up and running and producing revenue before a payment is due. Other seasonal businesses may opt for structured, or skip, payments, which allow the company to match payments to the seasonality of its business and can improve cash flow.

Do certain types of equipment financing offer tax advantages?
When a company purchases equipment, it may be able to take depreciation deductions over a period of time, which lowers its taxable income. Many companies over the last several years have also been able to take advantage of government stimulus programs that allow for accelerated depreciation of equipment or an increase in the Section 179 expense allowance. The interest payments of an equipment loan, and the entire lease payment for some lease structures, are also expensed on the income statement, which can lower taxable income. Before making a purchase, talk to your accountant or tax adviser to learn how specific tax incentives can work for your business.

It is time to make that purchase! Taking advantage of the new depreciation allowances under Section 179.

 POWERFUL TAX INCENTIVES FOR EQUIPMENT PURCHASES EXTENDED

SECTION 179 “SMALL BUSINESS”

EXPENSING THROUGH 2011

BONUS DEPRECIATION THROUGH 2010

The Small Business Jobs Act has been enacted into law. In a major victory for manufacturers, the new law expands Section 179 expensing for small business new or used equipment purchases ordered and placed in service through 2011. It also extends 50% bonus depreciation for the 2010 tax year, which applies to new equipment only.

                       

The boost to $500,000 in Section 179 expensing is extended for new and used equipment purchases ordered and placed in service in the 2010 and 2011 tax years. Moreover, the cap on how much equipment can be purchased to fully enjoy the write-off increases to $2 million (after which the amount that can be deducted phases out dollar for dollar).

50% Bonus Depreciation on new equipment purchases has been extended for the 2010 tax year.

Here’s how the new provisions work for you:

Let’s assume that the X Manufacturing Co.* retools their facility with new and used equipment totaling $800,000. Under the new Section 179 extensions, X Manufacturing can write off 68% of the asset in the first year, as opposed to 28% had enhanced Section 179 not been enacted for the 2010 and 2011 tax years.

Now assume that the $800,000 is a new equipment purchase placed in service in 2010. X Manufacturing can write off 84% of the asset using bonus depreciation together with Sec. 179.

SECTION 179 BOOST FOR SMALL BUSINESSES

Under the extension, small businesses (whose total equipment purchases don’t exceed $2 million) can expense the first $500,000 for the 2010 and 2011 tax years.

$800,000 on New/Used Machine

OLD LAW (pre-2008 change/2010 extension)

Section 179 Deduction = $128,000

PLUS 14% depreciation on remaining 1st yr basis ($672K) = $ 94,080

TOTAL Old Law First-year Deduction = $222,080 – 28% write-off in 1st yr.

NEW 2010/2011 LAW - $800,000

Sec. 179 Deduction = $500,000

PLUS14% on remaining basis ($300K) = $ 42,000

TOTAL 2010/2011 Deduction = $542,000 – 68% write-off in 1st yr. 

2010 50% BONUS DEPRECIATION EXTENSION

Plus Sec. 179 can be combined with 50% Bonus Depreciation on NEW equipment purchases in 2010.

http:/www.mazumacapital.com$800,000 on NEW Machine

NEW 2010 LAW - $800,000

Sec. 179 Deduction = $500,000

PLUS 50% Bonus Depreciation on remaining basis ($300K) = $150,000

PLUS 14% on 1st year basis ($150K) = $ 21,000

TOTAL 2010 Deduction = $671,000 – 84% write-off in 1st yr.

* Examples assumes a 7-year asset depreciation class

Source: AMT- The Association For Manufacturing Technology