The Tax Man Giveth!

taxesTypically the word “taxes” causes a fierce chill to run down the back of the typical intermodal or transportation owner. However, depreciation is one of those instances when we can actually stand to gain something. Section 179 deduction was extended and expanded by the American Recovery and Reinvestment Act (ARRA), enacted in February, for a variety of business tax deductions and credits. The following is an excerpt from the IRS website explaining how it works:

Faster Write-Offs for Certain Capital Expenditures

Many small businesses that invest in new property and equipment will be able to write off most or all of these purchases on their 2009 returns. The new law extends through 2009 the special 50 percent depreciation allowance, also known as bonus depreciation, and increased limits on the section 179 deduction, named for the relevant section of the Internal Revenue Code.

 Normally, businesses recover these capital investments through annual depreciation deductions spread over several years. Both of these provisions encourage these investments by enabling businesses to write them off more quickly.

The bonus depreciation provision generally enables businesses to deduct half the cost of qualifying property in the year it is placed in service.

The section 179 deduction enables small businesses to deduct up to $250,000 of the cost of machinery, equipment, vehicles, furniture and other qualifying property placed in service during 2009. Without the new law, the limit would have dropped to $133,000. The existing $25,000 limit still applies to sport utility vehicles. A special phase-out provision effectively targets the section 179 deduction to small businesses and generally eliminates it for most larger businesses.

Bonus depreciation and the section 179 deduction are claimed on Form 4562. Further details are in the instructions for this form.

Here’s some numbers for those wondering how it work in black and white. If you’re considering buying $100,000.00 worth of equipment in 2009. After section 179 and 50% bonus depreciation, one can expect a savings of $35,000.00. Which means your $100,000.00 purchase turns into $65,000.00; that’s a substantial savings. So the take away lesson here is if you’re in need of new equipment, do it, and do it before the end of 2009, being that many of these deductions will be gone after December.

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