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Sidestep ‘hidden’ depreciation trap

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in Small Business Tax,Small Business Tax Deduction Strategies

If you’re like many other small business owners, you may wait until the end of the year to buy property like equipment and computers.

Strategy: Don’t fall into a depreciation tax trap for property placed in service in the last quarter of the year. This little-noticed tax provision might catch you by surprise if you’re not careful.

It all has to do with the way depreciation deductions are calculated under the Modified Accelerated Cost Recovery System (MACRS). In essence, your deduction will be significantly reduced if the cost of depreciable property (other than real estate) that is put in service in the fourth quarter exceeds 40% of the total cost of such property placed in service during the tax year. Property for which you claim the Section 179 first-year depreciation write-off is not counted. However, the depreciation reduction rule can come into play if you’ve exceeded the annual Section 179 deduction limit or if propert...(register to read more)

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