As a business owner, you may have faced the prospect of losing two important tax-saving provisions as part of the fiscal cliff: the temporarily expanded Section 179 expensing limits and the 50 percent first-year bonus depreciation rule. The increased deduction limits were originally enacted several years ago—and subsequently extended and modified a few times since—to help businesses weather the prolonged economic slump. The premise was that the tax perks would encourage businesses to make purchases, giving a boost to the overall economy.
As part of the American Taxpayer Relief Act of 2012, these provisions were once again extended, and the Section 179 deduction was enhanced for both 2012 (retroactively) and 2013.
Section 179 rules now state that for both 2012 and 2013, businesses can expense purchases of up to $500,000 for new and used equipment, up to a maximum investment of $2 million for the year. Any purchases over that $2 million limit reduce the allowable deduction amount on a dollar-for-dollar basis. The idea here is that the provision is designed primarily to benefit small and medium-sized businesses.
But businesses that make purchases over the $2 million limit have a reason to invest, too. The bonus depreciation deduction means business owners can speed up their depreciation tax benefits by taking a first-year deduction of 50% of the cost of new equipment only (i.e., purchases of used equipment are ineligible). To take advantage of both the Section 179 deduction and the bonus depreciation, a business would typically max out its Section 179 expense first and then apply the 50% bonus depreciation to remaining purchases. Companies that experience net operating losses may also take the 50% bonus depreciation deduction, carrying the loss forward if needed.
If you have questions, contact the Business Experts at Henssler Financial: experts@henssler.com or 770-429-9166.
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The following information is reprinted with permission from Forefield, a division of Broadridge Financial Solutions, Inc. This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
