Business Tax Planning
of this this writing, the status of equipment
expensing for 2014 is unclear. The same
is true for bonus depreciation. The ongoing
uncertainty on these issues may have an
impact on your year-end plans to acquire
179 of the tax code allows certain types
of equipment to be expensed: the purchase
price is fully tax deductible when the
item is placed in service, rather than
deducted over a multi-year depreciation
schedule. New and used equipment qualify
for this tax benefit, with some exceptions
(such as real estate).
recent years, Congress has consistently
expanded the reach of Section 179. By
2013, up to $500,000 of purchases of equipment
eligible for the deduction could be expensed;
a business could buy up to $2 million
worth of eligible equipment that year
before losing any of this benefit.
1: In 2013, DEF Corp. bought $2,085,000
of business equipment eligible for the
Section 179 expense deduction and elected
to not take bonus depreciation on the
equipment. This was $85,000 over the Section
179 limit, so DEF could deduct only $415,000
(the $500,000 ceiling minus $85,000) as
an expense in 2013 under Section 179.
DEF must recover the other $1,670,000
of the costs of its 2013 purchases through
$500,000 and $2 million limits for Section
179 expired after 2013. Under current
law, the 2014 limit for expensing is $25,000
worth of purchases (plus an inflation
adjustment) with a phaseout beginning
at $200,000 worth of purchases.
bonus depreciation was available for new
equipment until expiration after 2013.
This provision allowed a 50% depreciation
deduction on purchases of new equipment,
before using an extended schedule to depreciate
the balance. Currently, bonus depreciation
is not permitted in 2014.
Both houses of Congress have indicated
interest in restoring an expanded Section
179 deduction as well as bonus depreciation
for 2014. However, any updates probably
won't be announced until late in the year.
If that's the case, how should business
owners and self-employed individuals proceed?
by acquiring any equipment that your company
truly needs for current and future profitability.
If your business needs the item now, buy
it now, and deduct the cost as the tax
the timing isn't urgent, consider limiting
purchases to those that will bring 2014
acquisitions up to $25,000, which will
be the Section 179 ceiling if no extension
is passed. Contact our office in late
November or early December for an update
on relevant legislation.
in mind that equipment must be placed
in service by the end of 2014 to qualify
for depreciation deductions (if reinstated)
or expensing this year, so merely paying
for equipment in 2014 does not entitle
you to a deduction. However, this also
means that you can get the 2014 tax benefits
for equipment placed in service in 2014
even if you defer payment for the equipment
Source: November 2014 AICPA Client