Tax Planning Before Year End - Take Advantage of Bonus and Section 179 Depreciation Deductions

The Economic Stimulus Package of 2008 gives small businesses the ability to take advantage of tax savings by accelerating depreciation on certain types of business equipment. These provisions allow you to expense more of the value of business equipment purchased this year, for a larger tax deduction. The reason for these provisions is to encourage capital expenditures by businesses, to keep the economy growing.

Bonus Depreciation
The Bonus Depreciation provision allows you to depreciate 50 percent of the adjusted basis of certain qualified property during the year that the property is placed in service. To take advantage of this bonus depreciation provision for 2008, you must place the property in service (that is, buy it and have it operating) after December 31, 2007 and before January 1, 2009.

Section 179 Depreciation
The other accelerated depreciation provision for 2008 involves Section 179 property. Under special provisions for this year, the IRS says:

a qualifying business can expense up to $250,000 of section 179 property purchased by the taxpayer in a tax year beginning in 2008. Absent this legislation, the 2008 expensing limit for section 179 property would have been $128,000. The $250,000 amount provided under the new law is reduced if the cost of all section 179 property placed in service by the taxpayer during the tax year exceeds $800,000

So you can depreciate more this year than you would in previous years.

Use Form 4562-FY to provide information to the IRS on Section 179 depreciation, special bonus depreciation, and MACRS depreciation.

If you are considering buying equipment, you may want to talk with your tax adviser to see if it would be a good tax move for you to buy in 2008, rather than waiting until 2009, when tax rates might be higher.