Tax Savings on IT Equipment

Section 179 of the IRS tax code allows businesses to deduct the full purchase price of qualifying equipment purchased or financed during the 2008 tax year. That means that if you buy (or lease) a piece of qualifying equipment, you can DEDUCT the FULL PURCHASE PRICE from your gross income.

Section 179 Deduction limits have been generously increased, and businesses across the country will reap the rewards.

Deduction limits:

  • 2007 Deduction Limit: $125,000 with a cap of $250,000
  • 2008 Deduction Limit: $250,000 with a cap of $800,000

2008 One-Time Bonus Deduction

Another change that the Economic Stimulus Act of 2008 brings to Section 179 is it offers a one-time “bonus first year depreciation” of 50% on qualifying equipment. This is after the above deduction limit is reached.

In other words, if you buy enough equipment to exceed the $250,000 deduction, you may receive an extra 50% depreciation on the rest – this is in addition to normal depreciation.

Act Now!

As of this writing, this is a one-year increase. Unless it is extended, the older limits will go into effect for 2009, so if you want to take advantage of the higher limits, you need to act in 2008.

If a business can write off the entire amount of an IT purchase, they might add more equipment this year instead of waiting. Here is an example of the savings that are available to you.

2008 Equipment Purchases:

$400,000

First Year Write Off:
(Under the new law, $250,000 is the maximum Section 179 write-off in 2008)		 $250,000
Bonus First year Depreciation:
(On remaining value: $400k-$250k = $150k x 50% = $75k)		 $75,000
Normal First Year Depreciation:
(Depreciation calculated at 5 years, meaning 20% per year. $75k x 20% = $15k)		 $15,000
Total First year Deduction:
($250k +$75k + $15k = $340,000)		 $340,000
Tax Savings:
(Assume 35% tax rate. $340k x 35% = $119,000)		 $119,000
Total Equipment Cost:
(400k less all tax deductions of $119k)		 $281,000

Qualifications:

To qualify for the Section 179 Deduction, equipment purchased must be placed into service between January 1, 2008 and December 31, 2008. For more information, please consult with a tax professional or the IRS website. You may also access more information about the Section 179 Deduction at: http://www.section179.org/index.html.

 
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