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The Jobs and Growth Tax Relief Reconciliation Act of May 23, 2003
remains in place for 2005. This bill increases the limit for accelerated
depreciation allowed under IRS Section 179. This new limit, estimated
to be $105,000* for 2005, allows up to $105,000 of equipment cost
to be expensed in the year it is acquired. This results in an immediate
tax savings for the business.**
Immediate Expensing
One way the Act can help reduce your taxes is that it allows you
to immediately deduct as a business expense up to $105,000 of qualifying
property. For smaller businesses that do not purchase a lot of equipment
or software, you may be able to receive immediate tax benefits instead
of slowly deducting the property over 5 or 10 years.
For example, let's say you acquired (acquisition by lease purchase
qualifies) $50,000 of equipment. Your immediate expense deduction
is $50,000 (compared to the standard MACRS of $15,000) representing
an increased first year tax deduction of $35,000. This results in
a tax savings of $12,250!! (Assumes a 35% tax brcket)
Bonus Depreciation
The additional "Bonus Depreciation" allowed under IRS
Section 168 has returned to its original limits for 2005. The Bonus
Depreciation allows for 30% of any equipment cost in excess of the
$105,000 Section 179 limit (up to a maximum cost of $410,000*) to
be expensed in the year the equipment is acquired. Normal MACRS
depreciation is applicable for the remaining 70%.
Check
out our Tax Lease Savings Calculator.
* Estimated limits; 2005's level has not yet
been established by the IRS.
** Qualifying criteria are utilized by the IRS to determine applicability
of the Section 179 deduction for a business. Please consult your tax
advisor to determine if your business meets these criteria. |