Special Depreciation Allowance

“Bonus Depreciation”

Introduction:

Both the 'Tax Relief Act of 2010' as well as the 'Jobs Act of 2010' that passed in late 2010 affected Section 179 in a positive way for this 2011 tax year. The newest changes are as follows:

• The Section 179 Deduction limit increased to $500,000. The total amount of equipment that can be purchased increased to $2 million. This includes most new and used capital equipment, and also includes certain software.
• “Bonus Depreciation” increased to 100% on qualified assets. Bonus Depreciation can only be taken on new equipment.

When applying these provisions, Section 179 is generally taken first, followed by Bonus Depreciation – unless the business has no taxable profit in 2011.

How does Bonus Depreciation reduce taxes?

By depreciating 100% of your newly purchased equipment, you are able to reduce your taxable profits from the company by the entire value of the equipment without hurting your ability to prove income for loans or other funding.  Whether you invest $2k, $50k or $1 million on new equipment in 2011 or 2012, you will be able to deduct 100% of the amount spent from your company’s taxable profits. 

While this depreciation reduces the profits of the company, the depreciation will be added back to your profits should you be required to show income when applying for a loan, purchasing a home, etc.  In short, the depreciation gives you all the tax benefits of the purchase now, without breaking it down over an extended period. 

How will Bonus Depreciation help you & your business?

All equipment and technology purchased in 2011 for use in your business qualifies for Bonus Depreciation.  This means that if you can equip your business with all the equipment you have been in need of, or modernize your business with newer technology, and then deduct 100% of the cost on your 2011 taxes in the spring!  This includes things like computers, software, office equipment, business vehicles, machinery and much more.  

Equipment must be purchased by December 31st to qualify on your 2011 taxes.  If paid on a credit card, they are still recorded as a qualifying expense in 2011, even if the credit card is not paid off until 2012.  For questions regarding depreciation and other tax implications of your practice, please contact us at support@msftaxes.com.  Thank you!