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Section 179 deduction: year-end tax strategy

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in Leaders & Managers,Management Training,Small Business Tax,Small Business Tax Deduction Strategies

Under Section 179 of the tax code, your business may elect to “expense” (i.e., currently deduct) the cost of qualified assets up to an annual limit. However, the deduction amount can’t exceed the amount of taxable income for the year (before the deduction). Also, the deduction is reduced dollar-for-dollar for large purchases over the annual threshold.

The new economic stimulus law preserves a maximum deduction of $250,000 for tax years beginning in 2009. The phase-out threshold for 2009 is kept at $800,000.

Strategy: Acquire and place business assets in service before year-end. After 2009, the maximum deduction is scheduled to revert to $125,000 (plus indexing for inflation).

Unlike regular depreciation deductions, which may be reduced for excessive acquisitions in the fourth quarter, it doesn’t matter when during the year assets are placed in service for this purpose. The Section 179 election may also be combined with bonus depreciation deduction and regular depreciation deductions.

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