With increasing taxes just around the corner, most advisers are recommending deferring deductions to 2013. However, if you are a business owner and you think you'll need new business equipment or furniture next year, you may want to make that purchase in 2012.
There are two special provisions enacted several years ago that will expire at year-end: a temporary increase in the Section 179 property-expensing deduction and special first-year bonus depreciation.
Over the years, various stimulus acts have aimed to spur business investment, by increasing the Section 179 property-expensing deduction. These laws allow a business to deduct, for the current tax year, the full purchase price of financed or leased equipment and off-the-shelf software that qualifies for the deduction, rather than utilize the standard depreciation schedule.
For 2012, businesses can deduct up to $139,000 of the cost of qualified property, with the total amount of equipment purchased not exceeding $560,000. This amount phases out when more than $560,000 worth of assets are put into service.
In addition, there is a special 50% depreciation deduction for property acquired and placed in service in 2012. The bonus deduction can be taken on the adjusted cost basis of the property after any Section 179 expensing. To qualify for bonus depreciation, the property must be new, acquired during 2012 and must be placed in service during 2012.
You have a very narrow window to make purchases, because as of January 1, 2013, the Section 179 property-expensing limit is scheduled to drop to $25,000, phasing out after $200,000 of total purchased equipment, and the 50% bonus depreciation allowance will likely be eliminated.
Since the deduction and the bonus depreciation can work in conjunction, it is certainly worth talking to your C.P.A. or tax adviser to plan some tax-advantaged purchases for your business before year end.
William G. Lako, Jr., CFP®, is a principal at Henssler Financial, and a co-host on Atlanta's longest running, most respected financial talk radio show "Money Talks" airing Sundays at 10 a.m. on Talk 920 AM, WGKA.