Reprinted from the December Business column in Metalforming magazine.
By: Michael Bleau
Whether you are a metal stamper or a supplier serving the industry, you both have an opportunity to leverage Uncle Sam’s pocketbook. But you’d better hurry, since the clock is winding down on 2010 and when it does, the best part of this deal ends. I’m referring to the bonus deduction of Section 179 of the tax code. This tax code was created to help small businesses deduct the full amount, within limits, for the purchase of equipment, vehicles and other tangible personal property. Enacted originally in the early 1960s, it became most notable in the 80’s when Congress upped the limits. Most recently, it received special provisions to spur economic growth by doubling the available deduction through The Small Business Jobs and Credit Act of 2010. After a quick review, you may find it enticing as a manufacturer to quickly take possession of needed equipment or encouraging as an equipment supplier to make that big sales push as we close out the year.
· Taxpayers can write-off up to $500,000 of qualified capital expenditures—subject to a dollar-for-dollar phase-out once these expenditures exceed $2,000,000—for tax years 2010 and 2011.
· Chances are if you use it in your business then it probably qualifies under Sect 179; including machines, off-the-shelf software, computers, office furniture and office equipment, vehicles with a gross vehicle weight in excess of 6,000 lbs, and certain qualifying real estate.
· Section 179 extends a first-year 50% depreciation for qualifying purchases placed in service during the 2010 tax year. However, the 50% bonus depreciation for tax is not extended into year 2011 and can be used in combination with Section 179 assets, but not for the same assets…no double-dipping.
· The code allows a business to deduct, for the current tax year, the full purchase price of financed or leased equipment that qualifies for the deduction. And key to this, the equipment must be placed into service in the same tax year that the deduction is taken.
· By deducting the full cost, you may substantially lower the amount you pay for equipment through earned deductions. And the benefits can be further expanded if you lease or finance your equipment. Also if the equipment is financed or leased, it's possible to receive a tax reduction that exceeds the amount of financing that must be paid in the first year or two, thus resulting in a positive cash flow.
· If your company is operating in an Enterprise Zone and Renewal Community Businesses, the New York Liberty Zone, or the Gulf Opportunity Zone, then you may qualify for increased deductions.
David Duffy, managing member of David Duffy, CPA & Company, PLLC (Royal Oak, MI) affirms that Section 179 was especially designed to benefit small to medium sized companies. Mr. Duffy explains that businesses are allowed to deduct Section 179 to the extent that it doesn't create a tax loss. And if you take 179 on an item and are in a tax loss position, then the 179 portion that ‘contributes’ to the loss is suspended and carried forward to apply in the first subsequent year that you have a tax profit, and then only to the extent that you have a profit. Unused, suspended 179 deductions continue to carry forward until they have been fully applied.
While you may have only the balance of this month to act and earn the bonus deduction, it may be well worth the effort. If you are a buyer, discuss with your tax advisor how Section 179 can benefit you. If you are a seller, then research and explain the benefits to your customers to try to move some inventory and boost your December sales numbers. Just remember, you have to purchase/lease, take possession and place into service the items before December 31st to qualify for the full benefits afforded by Sect 179. It’s not very often that our friends at the IRS make way for a very Merry Christmas, so let’s not disappoint scrooge—spend, spend, spend and save.
Special thanks to Jim Ward at COE Press Equipment for bringing Sect 179 to my attention.
