If you are thinking about buying equipment for your business, should you act now or wait until the economy rebounds? I know quite a few companies that need equipment right now because what they are using is close to breaking down. Yet, because of the slow economy, they are holding on to what they have hoping and praying that it gets them through another week.”We are waiting for the economy to improve before we make any decisions,” they say. But consider Section 179 of the IRS Tax Code. Section 179 allows a small business to deduct for the current tax year, the full purchase price of qualified equipment whether it is financed or leased, as long as it is placed into service in the same tax year.

With the American Recovery and Reinvestment Act, the $250,000 tax deduction is extended through the end of 2009 with a 50% bonus depreciation deduction on any remaining balance up to $800,000 (above this amount, the deduction decreases dollar for dollar). The impact that this tax break can have on the net cost of the equipment is substantial, so if the equipment is something that the business is eventually going to need in the near or not too distant future, now is not the time to delay. For example, if a business were to take full advantage of Section 179, an investment of $800,000 in equipment would cost only $597,000 after taking the tax benefits into consideration (assuming a 35% tax bracket).

So, when deciding to buy or not to buy, Section 179 is definitely something to consider. Right now, it is due to expire at the end of 2009, so lead time for equipment to be built and delivered must be taken into consideration since the equipment must be in service by the end of the year.

Is it possible that this tax advantage might be extended into 2010? I think it depends upon the trend of the recovery. If we get to the tail end of the year, and it looks like we are well on the road to economic recovery, then Congress will probably let this advantage expire. At this point, they will probably switch their emphasis from one of economic recovery to fiscal recovery, and they will want more tax dollars to be coming in! So my guess is that Section 179 is something to be taken advantage of right now. If you truly need it, then buy it now!

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