First Year Write-off
Increases to $125,000
your company takes full advantage of one of the best tax
breaks available to business owners today — the "Section 179"
first-year depreciation allowance for equipment.
look at what makes this deduction so valuable:
179 - You can write off
business equipment in one year, rather than depreciating it
over several years. This includes computers, copiers, fax
machines, telephone systems and office furniture. The annual
Section 179 allowance for taxable years beginning in 2007 is
$125,000 (up from $105,000 in 2005).
179 - Money spent to
purchase business-related equipment must generally be
recovered over a period of years, through depreciation or
Ground Rules: In order to qualify for the
Section 179 tax break, you must use the equipment more than 50
percent of the time for business. (If you use it for personal
purposes too, you must keep records and you're only allowed to
deduct the business-related percentage.)
The amount you write off for Section 179 can't exceed the
taxable income from your business. That may be a problem for C
corporations if the business zeroes out its income (typically
by paying deductible salaries and bonuses to shareholders)
because there won't be enough income to cover the Section 179
It might be better if the corporation pays less
compensation and keeps enough taxable income to cover a
Section 179 election.
You can carry over any excess to future years if you
run up against the income limitation. The deduction also
begins to phase out when you buy more than $430,000 worth of
equipment during 2007.
What if you anticipate your C corporation will operate at a
loss in 2007 but expects to turn a profit in 2008? You might
be better off postponing eligible expenditures to the
profitable year of 2007 when the company's cash flow is better
and the Section 179 deduction can be fully taken
advantage of that year.
With some careful timing, you
can utilize your full $125,000 tax break for 2007. Look around
your company toward year-end and buy any equipment you
As long as you "place it in service" by December 31, you
can deduct the equipment with Section 179. You can even pay
for it next year on credit and still write it off on this
year's tax return.
Tip: Many business
owners are involved in more than one venture. In the case of
pass-through entities (partnerships, LLCs, and S
corporations), the dollar limitation rules for
the Section 179 deduction apply at both the entity level
and the owner level. (IRS Regulation 1.179-2)
Therefore, advance planning may be necessary to maximize
Section 179 deductions at the owner level, which is where the
write-offs really count. Consult your tax adviser