Businesses have several tax incentives to invest in machinery, equipment, and other fixed assets in 2013.
Time is running short to take advantage of “bonus” first-year depreciation for machinery, equipment, and other fixed assets purchased by your business. In 2013, businesses can claim a first-year depreciation deduction equal to 50% of the adjusted basis (or cost) of qualified new property acquired and placed in service during the year. This tax break expires on December 31, 2013, for most types of property. The 50% bonus depreciation is subtracted from the property’s cost basis before the regular first-year depreciation deduction is computed.
Since bonus depreciation generally will not be available for 2014 purchases, consider purchasing new fixed assets (with a loan if necessary) that you will need next year if you will be able to claim 50% bonus depreciation (or the Section 179 deduction discussed below) for those assets in 2013.
Section 179 “expensing” offers businesses an alternative to depreciating assets over time. Under Section 179 of the tax code, your business may be able to currently deduct (“expense”) the cost of qualifying new or used assets. For 2013, the Section 179 expensing limit is generally $500,000. The amount of the available expensing election is reduced dollar for dollar as annual asset purchases rise from $2,000,000 to $2,500,000. Looking ahead to 2014, the expensing limit is scheduled to drop to $25,000 of purchases, and the phaseout will begin once 2014 asset acquisitions exceed $200,000.
You cannot expense more than the amount of your taxable income from active trades or businesses, and any part of an asset’s cost that is expensed cannot also be depreciated. Although real property generally does not qualify for expensing, up to $250,000 of certain leasehold improvements, retail improvements, or restaurant property placed in service during the 2013 tax year is eligible for the election.
Please contact Martini, Iosue & Akpovi by phone at (818) 789-1179 if you have questions or want more information.