Big break: Small businesses looking for annual tax deduction

NEW YORK, Dec 18, (AP): Small businesses are close to getting a permanent halfmillion-dollar tax break when they buy equipment like cars, computers and machinery. But tax pros say owners should crunch some numbers before claiming the big deduction.

An agreement that was reached in Congress this week and is expected to become law would give small companies a $500,000 annual deduction for equipment purchases. The so-called Section 179 deduction has been in limbo the past few years, with Congress often not agreeing until December to raise it from the $25,000 called for in the federal tax code. The permanent $500,000 deduction is part of a tax package that also includes a higher deduction through 2019 for all companies that depreciate equipment purchases and a permanent break on research and development costs.

Here’s what you need to know:

What is the section 179 deduction?

The Section 179 deduction allows a small business to deduct upfront rather than depreciate over a number of years the cost of equipment like computers, vehicles, manufacturing and farm machinery and office furniture. It can’t be used for equipment like heating and air conditioning units that become part of a building.

Equipment has to be purchased and put into service by Dec 31. So if you have a manufacturing machine delivered but it isn’t assembled, up and running by the end of the year, you can’t deduct it. You don’t have to pay for the equipment by year-end; It’s OK to buy it on credit and still take the full deduction.

Ifyourcompanyhaslostmoney,youcancarryover a portion of the deduction into the next year.

You can learn more about the deduction and how to claim it on your tax return from IRS Publication 946, How to Depreciate Property, which is available on the IRS website, www.irs.gov.

It’s also a good idea to discuss your plans with an accountant or tax attorney.

How you should i proceed?

Perhaps the greatest benefit of a permanent Section 179 deduction is that it allows businesses to do long-term financial planning. When accountants hold planning meetings with their business clients, they’re often looking at revenue and income projections for three or four years, and they may even be looking back at the previous year.