Expansion of Accelerated Depreciation Under Section 179
Tax continuing education is constantly adjusting to tax law changes. Sometimes the new rules are only effective for a short period. For example, the US Congress finally enacted tax legislation at the end of 2010 affecting tax returns for that year and 2011. Several of the tax changes affect small business owners. This includes an expansion of Section 179 accelerated depreciation. Enrolled agent CPE can barely keep up with instructions about the new depreciation details before they are set to change again.
An enrolled agent tax preparer is likely to encounter Section 179 situations when assisting small businesses. Section 179 permits buyers of fixed assets to deduct all or most of their cost for new purchases. But there is a limit to the total deductible costs per year. This limit increases for 2010 and 2011 tax returns to $500,000.
The new law also allows 100 percent bonus depreciation on purchases of fixed assets. This can apply to amounts that exceed $500,000 or as a substitute for Section 179 on the first $500,000. After 2011, the tax-deductible bonus amount returns to 50 percent. A Section 179 deduction is only available up to the amount of business profit. The basic rules about this part of the tax code are covered in tax CPE courses. Because Section 179 is only available in the year fixed assets are acquired, an unprofitable business can use bonus depreciation instead. This permits depreciation of fixed asset costs even when it creates a loss. That loss is then carried carry forward and applied to profits in succeeding years. This reduces tax when the business is profitable.
Normally, businesses are required to recover the cost of assets with a life exceeding one year by deducting annual depreciation over several years. Section 179 and bonus depreciation permit businesses to write off costs more quickly. This includes purchases of machinery, equipment, vehicles with a gross weight over 6,000 pounds, furniture, computers, and software.
Tax professionals with enrolled agent certification possess the qualifications to properly advise business owners on maximizing the tax benefits of fixed assets purchases. The total amount of equipment costs that qualify for applying the $500,000 Section 179 deduction in 2011 is $2,000,000. The Section 179 deduction is reduced dollar for dollar when the total costs exceed $2,000,000.
IRS Circular 230 Disclosure
Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.
