Year-End Writeoffs for Business Equipment Purchases

In light of uncertainty about whether certain tax incentives will be extended for another year, taxpayers should consider making eligible purchasing decisions before the end of the year. Taxpayers may claim a 50% bonus first-year depreciation allowance on certain property acquired and placed into service during 2012. The allowance may be claimed regardless of how long the property is in service during the year. While accelerating equipment purchases may not be appropriate for all businesses, the bonus first-year depreciation can have substantial benefits. For example, if a business puts $100,000 of eligible equipment into service this year on a five-year depreciation schedule, the business could claim $60,000 of depreciation in 2012. If it waited until 2013, the business might only be able to claim $20,000 of allowable depreciation.

Employers should also consider taking advantage of favorable expensing limits in 2012. Certain taxpayers may, rather than depreciating certain property placed in service, elect to deduct specified amounts as an expense. In 2012, the dollar limitation on the expense deduction is $139,000. Absent action by Congress, the limit will drop to $25,000 in 2013.  Eligible property is typically machinery and equipment, and includes off-the-shelf computer software until 2013. As a result, companies that have purchased less than $139,000 in eligible equipment should consider accelerating equipment purchases into 2013. By doing so, they may be able to claim up to the limitation on the expense deduction immediately rather than claiming depreciation over the life of the equipment.

© 2012 Parsonage Vandenack Williams LLC

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