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Avoid the last-quarter tax whammy on property

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in Small Business Tax,Small Business Tax Deduction Strategies

The maximum Section 179 deduction allowed under the tax law is currently only $25,000 for tax years beginning in 2015.

Strategy: Beware of a special tax trap for property placed in service in the last quarter of the year.

This last-quarter trap results from the way depreciation deductions are calculated under the Modified Accelerated Cost Recovery System (MACRS). It can apply if you’ve exceeded the Section 179 limit or property doesn’t otherwise qualify under Section 179.

Here’s the whole story: MACRS treats most property placed in service at any time during the year as being placed in service on July 1 under the “midyear convention.” Therefore, your business can effectively benefit from a half-year’s worth of depreciation, even for property that is placed in service late in the year.   

However, if the property placed in service during the last quarter exceeds 40% of the cost of all depreciable assets for the year—excluding...(register to read more)

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