Year-End Planning – Taking Advantage of Depreciation Tax Breaks

As the year winds down, so does the opportunity to take advantage of the depreciation deductions available for 2011. For those businesses confident enough to expand in these challenging economic times, now is a good time to buy machinery and equipment. Depreciation deductions and expensing deductions are far more generous now than they will be in 2012.

Extraordinarily high expensing limits for 2011. Thanks to the generous limits that currently apply, virtually all small businesses and many medium-sized businesses will be able to use Code Sec. 179 expensing to write off most, if not all, capital expenditures. For property placed in service in 2011, the Code Sec. 179 expense deduction is $500,000. This amount starts to phase out when fixed asset purchases exceed $2,000,000 for the year of election. This expense election generally does not apply to real estate purchases or leasehold improvements.

2011 Bonus depreciation. Taxpayers that buy a new heavy SUV and use it entirely for business can write off the entire purchase price in the placed-in-service year. Under the 2010 Tax Relief Act, the bonus first-year depreciation is 100 percent (instead of 50 percent) for qualified property that is acquired and placed in service after September 8, 2010, and before January 1, 2012. Heavy SUVs that have a gross vehicle weight of more than 6,000 pounds qualify for the 100 percent bonus first-year depreciation.

Information provided by Pershing Yoakley & Associates, One Cherokee Mills, 2220 Sutherland Ave., Knoxville, Tennessee 37919, 800. 270.9629