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 the year you purchase it. The current 179 Deduction is $500,000. Which is really a plus for small businesses.
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 unit would be eligible for the 179 Deduction. Property attached to your building but not a structural component such as ovens or a table saw 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 equipment such as 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 as long as you had enough income to cover the deduction.
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 and purchased between January 1st and December 31st of the year you are claiming the deduction.
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.
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