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Tax Relief for Equipment Purchases Extended

by Anderson & Vreeland

Section 179 of the American Taxpayer Relief Act has been extended through 2013, which can help businesses purchase equipment while writing off most, if not all, of the cost, resulting in a faster return on investment.

What does this mean for your company?

Congress has passed the bill to extend Section 179 and the Depreciation Bonus retroactive as of Jan. 1, 2012, through the end of 2013. The deductions were initially part of the American Taxpayer Relief Act and provided businesses with the ability to substantially accelerate depreciation on qualified purchases, which included: equipment and machinery, as well as certain vehicles and software in the year of purchase, as opposed to depreciating the equipment over the life of the asset.

Section 179:

This tax deduction allows businesses to deduct the purchase price of new or used equipment and software in the year it was purchased and installed. The Code Section 179 election to expense certain depreciable business assets was retroactively increased to $500,000 from $125,000 for 2012, with the expense allowance reduced dollar for dollar by the amount that the qualifying property placed in service by the taxpayer for the year exceeds $2 million. The limits were changed as of 1/1/2013, and are for tax year 2013. In addition, 2012's old limit ($125,000 deduction) has now been raised to $500,000 as well. This means qualifying purchases made in 2012 can now take advantage of the new, higher deduction limits.

There are certain limitations that apply, including a $2 million cap on total equipment purchased. Additionally, Section 179 may not exceed the taxable income for the year which it is taken. This means that a business is able to write off more of the new equipment purchased and installed in 2012, as well as continuing to take advantage of this deduction in 2013.

How it works

2013 Deduction Limit = $500,000

2013 Limit on Capital Purchases = $2 million

2013 Bonus Depreciation = 50 percent

Depreciation Bonus:

The first year depreciation bonus is for NEW equipment only. After deducting Section 179 for NEW equipment purchased, a business would then be able to deduct an additional 50 percent of the remaining balance for new equipment purchased and installed in 2012. This benefit was to expire on 1/1/13, however, Congress elected to extend the 50 percent Depreciation Bonus through 2013.

Example 1:

Cost of Equipment: $450,000

Tax Deductions for 2013 (providing it is installed by 12/31/13, the business has not purchased over $2 million in equipment in 2012 or 2013 and the company has this much in pre-tax profits)

Section 179 allows the first $500,000 to be deducted: $450,000 or 100 percent of the equipment cost!

If the company pays taxes at a rate of 35 percent, that would be a tax savings of $157,500!

Resulting in a lower equipment cost of: $292,500

Example 2:

Cost of a Total Equipment Line: $1,500,000

Tax Deductions for 2013 (Providing it is installed by 12/31/13 and the company has this much in pre-tax profits)

Section 179 allows the first $500,000 to be deducted: $500,000

Depreciation Bonus: $500,000

Total Amount that can be Depreciated: $1,100,000

If the company pays taxes at a rate of 35 percent, that would be a tax savings of $385,000!

Taking advantage of this tax deduction while it is still in effect can result in a faster return on investment for new equipment.

Consult a tax attorney to make sure Section 179 savings are right for your company.

Anderson & Vreeland supplies customers with innovative material and technological solutions in the flexographic industry. A nationwide staff of technical representatives is thoroughly knowledgeable about digital imaging and the fine point of flexo. For more information, call 866.282.7697 or visit www.andersonvreeland.com.

Reprinted with permission from Flexo Daily.