As you are reviewing budget plans for the end of 2013 and thinking ahead to 2014, don’t forget that the $500,000 tax deduction limit in Section 179 for new equipment and software is set to expire at the end of this year.

The scheduled limit for 2014 is $25,000, so now is the time to check in with your tax professional for more information on how you can maximize this short-term opportunity. Congress kept the high limit in place to encourage businesses to invest in new equipment, software and other business property.

This limit was actually going to be reduced to $25,000 for 2013, but the deduction became part of the package Congress negotiated to resolve the “Fiscal Cliff” at the beginning of the year and the higher limit was left in.

Bonus depreciation also allows businesses to recover up to 50 percent of the cost of qualified business assets on their tax return the same year. This is often used after the $500,000 limit has been reached.

If you arrange financing for your new equipment investments, you may still be able to claim the total cost of your purchase while spreading out the expense with monthly payments.

Things to think about

New vs. used makes a difference. Bonus depreciation only applies to brand-new resources. “Previously owned” equipment can often be expensed but does not qualify for bonus depreciation.

What is your long-term business income forecast? While taking a big deduction to recoup a large equipment investment may sound like an easy decision, this is another discussion to have with your tax professional. If you expect to enter a higher tax bracket or are confident your business income will continue to rise, spreading your deduction out over a few years may be the smarter move.

The full deduction is available up to December 31. You should be able to claim the entire amount of your expense and/or the bonus deduction as long as the equipment goes into service before the ball drops on Times Square to ring in 2014.

If investing in new IT equipment, software or other technology resources makes sense for your business, contact the team at Marathon Consulting to learn more about how we can help you make the most of your IT investment.

Photo Credit: Tax by Definition by Alan Cleaver (CC by 2.0)

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