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Deduct the Cost of Buying a GPS Tracking System!

Posted at April 6, 2010 » By : » Categories : Blog » 0 Comment

Section 179 Provides BIG $$$ Incentives…

Businesses to deduct the full purchase price of qualifying equipment purchased or financed during the tax year

Invest in GPS and Fleet Management and receive a generous tax break designed specifically to help companies invest in technology and their business. Section 179 of the IRS tax code allows businesses to deduct the full purchase price of qualifying equipment purchased or financed during the tax year.

What is the Section 179 Deduction? Most people think the Section 179 Deduction is some arcane or complicated tax code. It really isn’t, as the following will show you. Essentially, Section 179 of the IRS tax code allows businesses to deduct the full purchase price of qualifying equipment purchased or financed during the 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. It’s an incentive created by the US Government to encourage businesses to buy equipment and invest in themselves.  

Essentially, Section 179 works like this:  When your business buys certain pieces of equipment, it typically gets to write them off a little at a time through depreciation. In other words, if your company spends $50,000 on a vehicle, it gets to write off (say) $10,000 a year for five years (these numbers are only meant to give you an example.)

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. That’s the whole purpose behind Section 179.

Limits of Section 179: Section 179 does come with limits – there are caps to the total amount written off ($250,000 in 2009), and limits to the total amount of the equipment purchased ($800,000 in 2009.) The deduction begins to phase out dollar for dollar after 800k, so this makes it a true small and medium-sized business deduction.

However, in 2009, businesses that exceed the $250k deduction limit can take a bonus depreciation of 50% on the amount that exceeds the limit. And then also take normal depreciation on the rest. Nice.

Who Qualifies for Section 179? All businesses that purchase or finance less than $800,000 in business equipment should qualify for the Section 179 Deduction. In addition, most tangible goods qualify for the Section 179 Deduction. Also, to qualify for the Section 179 Deduction; the equipment purchased must be placed into service between January 1, 2009 and December 31, 2009. The deduction begins to phase out if more than $800,000 of equipment is purchased – in fact, the deduction decreases on a dollar for dollar scale after that, making Section 179 a deduction specifically for small and medium-sized businesses.

Leasing and Section 179: Did you know that your company can lease equipment and still take full advantage of the Section 179 deduction? In fact, leasing equipment with the Section 179 deduction in mind is a preferred financial strategy for many businesses, as it can significantly help with not only cash flow, but with profits as well.

Non-Tax | Capital Lease: The main benefit of a non-tax capital lease is that you can still take full advantage of the Section 179 Deduction, yet make smaller payments. With a non-tax capital lease you can acquire and write off $250,000 worth of equipment this year, without actually spending $250,000 this year. A small business that is managing cash flow can leverage a non-tax capital lease and still take the Section 179 Deduction

Examples of non-tax capital leases include a $1.00 Buyout, and a 10% Purchase Upon Termination (PUT) Lease. In many cases, the amount you save in taxes will be MORE than the total of your first year’s payments.

Equipment Financing: You may also obtain an equipment loan using an Equipment Finance Agreement (EFA) and still take the Section 179 Deduction.Advantages of Leasing and Financing:

The obvious advantage to leasing or financing equipment and then taking the Section 179 Deduction is the fact that you can deduct the full amount of the equipment, without paying the full amount this year. The amount you save in taxes can actually exceed the payments, making this a very bottom-line friendly deduction (you are reading this correctly – in many cases, the deduction will actually be profit.)

  American Recovery and Reinvestment Act of 2009 has officially extended the Section 179 Deduction increases made available in the Economic Stimulus Act of 2008 through December 31, 2009

  Economic Stimulus Act of 2008 and Section 179 

In order to address concerns regarding a slowing economy, President Bush asked Congress to come up with an Economic Stimulus Plan that would benefit both consumers and businesses, and Congress responded with a comprehensive economic stimulus package.

On February 13, 2008, President Bush signed H.R. 5140, otherwise known as the Economic Stimulus Act of 2008. The Economic Stimulus Act immediately grabbed headlines because most Americans would receive a check for $600 from Uncle Sam. While the Economic Stimulus Act was a boon for consumers, there were significant benefits in the Economic Stimulus Act for businesses as well.

In fact, Small Business benefited a great deal from the Economic Stimulus Act of 2008. This is because the Section 179 Deduction limits were generously increased, and small businesses across the country reaped the rewards.

How your business will benefit from the Economic Stimulus Act of 2008
The Section 179 Deduction has been significantly enhanced by the Economic Stimulus Act of 2008, and now extended an additional year by the American Recovery and Reinvestment Act of 2009, giving businesses an incentive to invest in themselves by purchasing or leasing new equipment.

The specific impact the Economic Stimulus Act has had on the Section 179 deduction is related to the dollar limits of the deduction. The previous dollar limits were a $125,000 limit on the deduction and the total amount of equipment purchased could not exceed $500,000. The Economic Stimulus Act raised these limits significantly. The new deduction limits are $250,000 on the deduction, and the total amount of equipment purchased cannot exceed $800,000.

To recap the new limits:

2007 Deduction Limit: $125,000
2008 Deduction Limit: $250,000

2009 Deduction Limit: $250,000

2007 Total Amount of Equipment: $500,000
(deduction decreases dollar for dollar after reached)

2008 Total Amount of Equipment: $800,000
(deduction decreases dollar for dollar after reached)

2009 Total Amount of Equipment: $800,000
(deduction decreases dollar for dollar after reached) 

Bonus Deduction:  Another change that the Economic Stimulus Act of 2008 brought 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 can take a “bonus” 50% depreciation on the rest – this is in addition to normal depreciation.

Everyone Benefits: Most small and medium-size businesses will find these new dollar limits generous indeed. The Economic Stimulus Act helped consumers, and it will also continue to significantly help most small businesses as well by lowering the cost of equipment that they need to purchase or lease to run their day-to-day operations.

Act Now: As of this writing, the American Recovery and Reinvestment Act of 2009 has extended the one-year increase through the end of 2009. Unless it is extended, the Section 179 Deduction phases out completely in 2010, so if you want to take advantage of the higher limits, you need to act before the end of this year.

Always consult your tax advisor regarding this or any tax item. No liability is accepted for errors or misinterpretation. We are not experts.

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