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In these tough economic times, many growers are
finding dollars for equipment purchases
difficult to come by. To provide help, the
Economic Stimulus Act provides tax benefits for
certain capital investments. These benefits are
extremely attractive to customers choosing to
purchase equipment.
Below is an example of how Section 179 expensing
can provide tangible economic value to customers
who chose to purchase such equipment and place
it in service prior to year end.
Every customer is different, as are their
individual financial circumstances. In all
cases, customers should understand their
individual business and tax consequences when
making the decision to apply IRS Section 179 to
their decision to purchase.
A company may buy qualifying Section 179 assets
and deduct up to $500,000 immediately so long as
the deduction does not reduce taxable income
below $0. The $500,000 is subject to a phase out
beginning at purchases greater than $2,000,000. In
addition the company may take 50% bonus
depreciation on the remaining balance of the
purchased asset. |
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For example, a company, with
taxable income of $60,000, purchases qualifying
property for $100,000. This company can take a
tax deduction as follows:
Section 179 deduction of $60,000 (limited to
taxable income). This leaves a basis for this
asset of $40,000 ($100,000 purchase price less
the Section 179 deduction). The company then
gets a 50% bonus depreciation deduction totaling
$20,000 (basis * 50%). Finally, the company gets
to take their normal depreciation on the
remaining basis of $20,000 ($100,000 - $60,000 -
$20,000) which would be $4,000 under Modified
Accelerated Cost Recovery System (MACRS) half
year convention for 5-year assets. The total
deduction is $84,000 versus what would be
$20,000 ($100,000 * 20%) without the bonus
deduction. A favorable position by $64,000 for
tax purposes.
If the Company in the above example had taxable
income greater than $100,000, the Company would
have been able to take the entire purchase of
$100,000 as a tax deduction.
To see the Tax
Incentive in action,
click
to use OVS’
free
"Savings Calculator."
Link to the
Internal Revenue
Service - Selection 179 Deduction.
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