With the recently passed American Taxpayer Relief Act of 2012 (also known as the Fiscal Cliff Act), there have been significant changes to Tax Code 179.
1) 2012 Tax Code 179 cap amount was $139,000. It has been raised retroactively to $500,000 This means that when business file their tax returns for 2012, they can now write off up to $500,00 (plus 50% bonus depreciation above $500,000) in equipment/software purchases rather than being limited to $139,000.
2) 2013 Tax Code 179 cap amount is $500,000 with a bonus depreciation of 50% for every dollar spent up to $2,000,000. This means that businesses can continue to write off purchases of equipment/software in 2013 .
A few points:
-Practices/Businesses may immediately depreciate (expense) up to $500,000 on their 2013 Tax Return.
– Practices/Businesses can expense the full cost (up to $500,000) of their equipment/software purchases by 12/31/13.
– So if you buy $75,000 worth of equipment/software, you can expense the full $75,000 to reduce your taxable income!
Let’s say taxable income was $100,000 prior to using Tax Code 179. Now, with the $75,000 expense, the taxable income is only $25,000 Any amount purchased over the $500,000 limit can typically be depreciated over the next 5 years You can get the full Tax Code 179 savings in 2013, and not start paying for the equipment/software until late 2013 or 2014 if financed. Tax Code Section 179 reduces the effective cost of your equipment or software solution
– Your equipment/software proposal is $75,000
– The assumed practice’s tax rate is 35%
– $75,000 in Tax Code 179 write offs equates to $75,000 * 35% = $26,250 in 2013 income tax savings
– You just saved $26,250 in actual income taxes through Tax Code 179
– Therefore, your $75,000 cost, just effectively became a net project cost of $48,750 ($75,000-$26,250= $48,750 or a 35% savings)
Use It or Lose It – Tax Code 179 is available to businesses every year; however, it does not rollover
– After 9/11, Congress temporarily inflated the Tax Code 179 cap from $25,000 with the hope of “jump starting” the economy. This inflated amount has been approved for 2013 with no guarantee of how long it will remain at this level.