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. Purchase equipment for $50,000 and you would write off $10,000 a year for 5 years.
Congress wrote an exception into the tax code, section 179, to help small businesses which allows them to take a full deduction for some capital equipment.
Tax changes last year restored Section 179 Deductions to its original limits of $25,000 plus an adjustment for inflation.
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 179 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, monitor, software, a scanner, a copier, telephone, and the furniture to put the new equipment on and a back friendly office chair to sit in for $7,000. All of that $7,000 could 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 pay you a visit but it’s the right thing to do! The IRS does rely on us to do the right thing when we file our taxes.
This deduction is not automatic. The IRS requires you to file form 4562 to get the deduction.
You may also want to get a copy of the IRS publication 946, How to Depreciate Property. Also the IRS has a help number for businesses, 800-829-4933.