Under the Modified Accelerated Cost Recovery System (MACRS), “the book” is to buy equipment late in the year in order to claim a half-year’s deduction. However, your situation may call for drastic measures.
Strategy: Replace worn-out or obsolete equipment right now. If you load up on such purchases early in the year—and purposely “flunk” a tax-law test later on—you’ll come out ahead.
Here’s the story: Normally, business assets (other than real estate) that you buy are treated as if they were placed in service halfway through the year, regardless of when that actually occurs. That’s commonly called the “half-year convention” in tax lingo. For five-year MACRS assets, the first-year write-off is 20 percent of the cost; it’s 14.29 percent for seven-year assets.
For instance, since computers are five-year assets, ...(register to read more)