The Small Business Jobs & Credit Act of 2010
Congress has extended and increased the amount small businesses may write-off for capital expenditures to $500,000 in 2010, and with a Non-Tax/Capital Lease you can still get the Section 179 benefits without paying cash. Here’s how you can lower your true cost of business equipment.
Business Equipment
Business owners who acquire equipment for their business – including StarBoxes, Phones, and switches as well as machinery, computers, and other tangible goods – usually prefer to take a substantial deduction in a single tax year, rather than depreciating the cost over a number of years. This accelerated deduction is known as a Section 179 deduction.
The 2010 law extends and increases the amount of qualified property that a business can expense under Section 179 to $500,000. This incentive applies to equipment placed into service by December 31, 2010 (for the 2010 tax year.) It is specifically designed for small companies, so the deduction phases out when a business purchases more than $2,000,000 of equipment in any one year. (Companies cannot write off more than their taxable income.)
Bonus Depreciation 2010
The law also maintains the bonus depreciation of 50% for qualifying assets for 2010 (Note: this deduction will be eliminated in 2011.) This bonus is in addition to regular first-year depreciation.
Benefits of a Non-Tax/Capital Lease
The benefit of a Non-Tax/Capital Lease is that it can take advantage of Section 179. You may expense up to $500,000 of leased equipment as long as the equipment is put into service in 2010. In addition, you may depreciate any excess on the depreciation schedule for that asset. Examples of Non-Tax/Capital Leases include a $1.00 Buyout, an Equipment Finance Agreement (EFA), and a 10% Purchase Upon Termination (PUT) Lease.
Example: Assume you finance $300,000 worth of business equipment, put it in use in 2010, and take advantage of Section 179. Your 2010 tax savings could be significant and could be used to pay your lease payments for many months.
Please see attached Tax Savings example below, which details how much your customer will save if they act prior to year end 2010.
Star2Star says Create Your Own Tax Break in 2010, without paying cash!
This sample calculation shows how taking advantage of Section 179 can significantly lower your company’s tax liability by $105,000. The $105,000 tax savings shown in this example can be used to make lease payments on Star2Star equipment, in some cases almost 30% of the total lease payments due over the term of the lease. For the specific impact to your company, please contact your tax advisor.
Tax Code Section 179 & Election to Expense Detail
The election, which is made on Form 4562, is for the tax year the property was placed in service. The total cost of property that may be expensed for any tax year cannot exceed the total amount of taxable income during the tax year. Section 179 property is property that you acquire by purchase for use in the active conduct of your business. To ensure property qualifies, reference IRS Publication 946.
This expense deduction is provided for certain taxpayers who elect to treat the cost of qualifying property as an expense rather than a capital expenditure. Under Section 179, equipment purchases, up to the amount approved for a given year, can be expensed (deducted from taxable income) if installed by December 31st. Non-Tax leases qualify for this deduction in their year of inception. Any excess above the expensed amount can be depreciated depending on the equipment type. Not all states follow federal law. Contact your tax advisor for the specific impact to your business.
Reminder: To take advantage of the tax incentives, your business equipment must be put in use by year-end.
