There are two lucrative federal tax incentives that will be expiring at the end of this year. If you’re planning to buy needed equipment, you may want to consider making those purchases before 2013 comes to a close.
The first expiring provision is the so-called Section 179 Election. Under this election, companies can choose to recover all or part of the cost of certain qualifying assets by deducting the expense in the year the company places the asset into service. Companies can choose the deduction rather than recovering the cost through depreciation. For 2013, the amount that can be deducted as an expense in the first year can’t be greater than $500,000. To most small businesses, this can have a huge impact. Starting January 1, 2014, the Section 179 Election will be slashed to only $25,000.
The second expiring provision is the 50% bonus depreciation. This was originally put into play as part of the economic stimulus legislation. If you’re purchasing a $600,000 piece of equipment, the bonus depreciation election allows you to write off $300,000 of this purchase in the first year. You also get the ability to write off the normal 20% of the other $300,000 left over in the first year, as well. That’s a write off of $360,000 in year 1. If this provision sunsets on December 31st, your 2014 write off will only be 20%. Considering the impact on cash flow, this is a no-brainer. This bonus depreciation provision can apply to a wide range of purchases and places no limits on the company’s asset purchases. It applies to large and small companies regardless.
There’s not much time to act, but a lot can be accomplished in the remaining weeks of the year.