Recently passed laws could positively impact both the cash flow and the growth of your business, by increasing your ability to cost-effectively place additional equipment into service. While the laws remain in place through 2012, the available limits are much higher in 2011. This is the year to take full advantage of what could be a “once in a lifetime” opportunity to grow or start your business.
Back in November, The Small Business Jobs Act of 2010 was signed into law on September 27, 2010. On December 17, 2010, the Tax Relief, Unemployment Insurance Re authorization and Job Creation Act of 2010 (the Tax Relief Act) was signed into law. The Tax Relief Act extended many of the Bush-era tax cuts originally enacted under the Economic Growth and Tax Relief Reconciliation Act of 2001. Taking advantage of this new law could improve the growth, cash flow and profitability of your business. Two of the provisions in the Tax Relief Act, Expanded Section 179 Expensing and Bonus Depreciation, directly impact businesses who buy qualified equipment during 2011 and 2012.
Section 179 allows you to expense (write-off) 100% of the purchase price on qualifying capital equipment, during the year it is placed in service. Dump trucks, flatbed trucks, box trucks, and many service trucks qualify. The available Section 179 deduction was DOUBLED to $500,000, and the total limit of equipment purchased was raised to $2,000,000 for 2011. In 2012 the deduction drops to $125,000 and the limit on total purchased equipment drops to $500,000.
Section 179 applies to new or used equipment that is placed in service during the year. Even when you finance the equipment, you still qualify for the full deduction. The obvious advantage to financing equipment and then taking the Section 179 Deduction is the fact that you can deduct the full amount of the equipment, without paying the full amount this year. The amount you save in taxes can actually exceed the payments. Section 179 expensing can be combined with Bonus Depreciation.
Bonus Depreciation allows you to depreciate 100% of the value for capital investments placed in service during 2011. For equipment placed in service during 2012, the maximum bonus depreciation drops to 50%. Like Section 179, Bonus Depreciation can greatly reduce your tax burden, thus increasing your cash-flow. Bonus Depreciation applies to new equipment only.
These provisions can change yearly without notice, so it benefits you to take advantage of these generous tax codes while they’re available. Section 179 and Bonus Depreciation offer small businesses a great opportunity to maximize their purchasing power. In addition, the recent Stimulus Acts have provided the small business owner with generous new (and higher) deduction limits. Most of the equipment your business will purchase, finance or lease qualifies for the deduction, so do your homework and verify that your company is leveraging these opportunities this year.
Disclaimer: DTI Trucks and there employees are not accountants, and do not provide financial services and advice. The information contained in this article is to provide basic information and a starting point in the process. We highly recommend you talking to your accountant to take advantage of this current law the best and safest way possible way before it expires.
Have a great day!