Turn depreciation deduction rules upside down

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in Small Business Tax,Small Business Tax Deduction Strategies

If you go by the book, you should buy equipment late in the year. Reason: Under the Modified Accelerated Cost Recovery System (MACRS), you can claim a depreciation deduction based on a half-year’s use, even if you use the equipment only for a few days in the year.

Of course, you might not be able to wait that long to replace outdated or obsolete equipment.

Strategy:
Load up on necessary equipment purchases early in the year. Thanks to a little-noticed wrinkle in the MACRS rules, you can come out ahead taxwise if you buy more equipment later. Plus, you’ll have access to the equipment when you really need it.

Here’s the whole story:
Normally, a new business asset is treated as if it were placed in service midyear, regardless of when that actually occurs. This is called the “half-year convention” in tax parlance. For five-year MACRS property, the first-year write-off under the half-year convention is equal to 20% of ...(register to read more)

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