Make Sure You Aren’t Missing Out On Expiring Tax Incentives
As 2011 rapidly comes to a close, so, too, do many of the small business tax breaks that provided an incentive for entrepreneurs to grow and expand.
Several key tax incentives, including one covering the purchase of office equipment and computers, will expire or be dramatically reduced at the end of this year.
If you act fast, you can still capitalize on these breaks.
Section 179
This deduction relates to the acquisition of equipment and certain software and allows businesses to write off depreciation expenses initially rather than over time. Theoretically this meant fewer taxes, and more income to invest back into the business. Things like office equipment, computers and machinery could be purchased at a net discount because of the deduction. In 2011, the deduction limit is $500,000. However, in 2012 it will be reduced to $125,000 and in 2013 it drops even further to $25,000.
Bonus depreciation
This deduction is also for small businesses that purchase equipment. For qualified assets, you can deduct 100 percent of depreciation up front in 2011, for up to $2 million (total, including that which was deducted via Section 179). This also drops significantly in 2012, to 50 percent.
Generally, depreciation is deducted over many years so these breaks provided an immediate tax savings for small businesses looking to expand. Considering the economy is still in a fairly fragile state, the reduction in these incentives may have a substantial impact on the recovery.
Year -end tax planning
Just because these deductions are going to be reduced doesn’t mean you should go on a shopping spree for new equipment and such.
Measure what the ultimate impact will be of either making the purchase now, or waiting until next year as the savings may not be as significant as you’d imagine. Not to mention, the equipment must be operational by the end of the year, not just on order.
Scott Berger, CPA, is a tax principal at accounting firm Kaufman Rossin in Boca Raton, Fla.
