Tax Deductions 8
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What is the Section 179 expense deduction?
The Section 179 expense deduction lets you write off certain equipment costs in one year instead of spreading them out (depreciating them) over time. To take the deduction you must: use the equipment more than 50 percent of the time in your business and be able to prove it
prorate the cost to your business usage (if you use the equipment 60 percent of the time for business, you can expense 60 percent of the cost)
recapture (pay back) a portion of the deduction if you dispose of the property or stop using it for business before the end of its useful life (the IRS considers computers, copiers, etc., to have a useful life of 5 years)
Additionally, these limits apply:
For the year 2004, the total amount of equipment you may expense in one year is limited to a maximum of $102,000 or your net income, whichever is lower. (The Jobs and Growth Tax Relief Reconciliation Act of 2003 raised the aggregate cost that can be expensed for any tax years 2003 to 2005 to $100,000 and then later adjustments increased that amount. Thus $102,000 is the 2004 amount.) The new law also expanded the definition of Code Section 179 property to include off-the shelf computer software. See Code Section 179 for the expanded definition.
- The $102,000 limit is per taxpayer, not per business. Thus, if you have more than one business the maximum you can expense is $102,000.
- Married individuals filing separate returns are treated as one taxpayer (together their expense deduction may not total more than $102,000).
- Members of partnerships or S corporations must follow special rules and should consult their accountants or a good tax guide before taking the 179 expense deduction.
- Automobiles may be expensed only up to certain IRS stated maximums.* In 2004, the maximum expense deduction you can take for an automobile (passenger vehicle) placed into service for your business is contingent on the purchase date and varies anywhere between $3060. and $10,710 (including Section 179 deduction). In the case of small trucks, and vans, the limits are between $3360 and $11,010.
- Trucks and sports utility vehicles (SUVs) weighing more than 6,000 pounds can be expensed under the Section 179 rules in effect from 2003 through 2005.
- If you put more than $410,000 of equipment into service in the year, the amount you may expense is reduced by one dollar for each dollar over $410,000. Thus, no expense deduction may be taken if you put $510,000 of equipment into use.
The above limits, as of this writing, are only in effect through the end of 2005. At that time, unless Congress extends the rules put in place by the Jobs and Growth Tax Relief Reconciliation Act of 2003, the maximum amounts for Section 179 deductions could drop significantly.
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