Sunday, November 3, 2013

It's Not Too Late to Benefit from Tax Savings

Most people think the Section 179 deduction is some mysterious or complicated tax code. It really isn't.

Essentially, Section 179 of the IRS tax code allows businesses to deduct the full purchase price of qualifying equipment and/or software purchased or financed during the tax year. That means that if you buy (or lease) a LED Sign, you can deduct the FULL PURCHASE PRICE from your gross income. It's an incentive created by the U.S. government to provide needed tax relief for small businesses. The American Taxpayer Relief Act, reinstated by Congress earlier this year, gives business owners the opportunity to lower their taxable income and free up cash by providing a 50 percent tax deduction on capital expenditures, including LED Displays.

Essentially it works like this. When your business buys certain items of equipment. including an LED display it is typically classified as a capital asset and it gets written off a little at a time through depreciation. In other words, if your company spends $50,000 on a display, it gets to write off (say) $10,000 a year for five years.

Now, while it's true that this is better than no write off at all, most business owners would really prefer to write off the entire equipment purchase price for the year they buy it. In fact, if a business could write off the entire amount, they might add more equipment this year instead of waiting over the next few years.

That's the whole purpose behind Section 179 - to stimulate the American economy (and your business) to move in a positive direction. For most small businesses (adding total equipment, software, and vehicles totaling less than $500,000 in 2013), the entire cost can be written-off on the 2013 tax return.

Section 179 does come with limits - there are caps to the total amount written off ($500,000 in 2013),  with a graduated phase-out once qualified capital expenditures exceed $2 million in the 2013 tax year. To qualify for tax savings, the equipment must be placed in service between Dec. 31, 2012, and Jan. 1, 2014. Because this tax benefit includes both the purchase price and the cost of installation of the LED Displays, business owners need to act fast to ensure their LED sign can be installed by the Dec. 31st deadline. When factoring in manufacturing lead times, if you want to take advantage of this benefit this year, you need to act now.

As always, please be sure to consult with your tax professional before making any capital purchases or visit the Internal Revenue Service web site at www.irs.gov.