BOSTON (CBS) – Normally if you purchase capital equipment for your business you don’t get to expense the total cost of the equipment the year you buy it. You depreciate the equipment over its useful life, expensing a portion each year on your tax return, which could be anywhere from three to seven years. Buy equipment for $50,000 and you would write off $10,000 a year for 5 years.
Two Congressional acts passed in late 2010 again changed the depreciation laws again for small businesses.
You can expense business equipment up to $500,000 using the IRS Section 179 Deduction. This dollar amount was once set at $25,000. Congress has kept increasing it to stimulate the economy and encourage businesses especially small businesses to purchase new equipment. You can also get the deduction for leased equipment. Check with your tax person about leasing vs. owning.
You cannot use the 179 deduction for structural changes in a building like new windows but you can still depreciate those items over their useful life.
A window AC would be eligible for the deduction. Property attached to your building but not a structural component such as ovens or a printing press would be eligible for the deduction. Things you could take with you if you moved.
If you set up your consulting business and you buy a computer, flat screen monitor, software, a scanner, a copier, a fax machine, telephones, and the furniture to put the new electronics on and a back friendly office chair for $7,000. Well all of that $7,000 can be written off in one year.
To be eligible for the section 179 deduction the asset must be used at least 50% for business in the first year it is placed into service. So if your kids are playing games or doing homework on the computer in the evenings you should not take a 100% deduction. Now I doubt if the IRS deduction police are going to come after you but it’s the right thing to do!
The equipment must also have been bought for the business. So if you are starting that consulting business and you have a two-year-old computer you cannot use the 179 deduction for the computer.
The Section 179 Deduction is not automatic. The IRS requires you to file form 4562 to get the deduction. And you must show a profit to take this deduction. You cannot have all of these start-up costs and expect to write them all off the first year without some income coming in.
Also the IRS has a help number for businesses, 800-829-4933.