Section 179 - Year-end Decisions

I general, it makes sense to write off (deduct) eligible equipment using the IRS Tax code Section 179 expense option in the year of purchase of said equipment.  You'll get the tax deduction faster than if you took depreciation over time.  However, expensing may not make sense if you're in a low tax bracket the year you purchase the equipment but expect to be in a higher bracket in the future, or if your new sole proprietorship is not making enough to trigger self-employment tax (FICA).

While the depreciation deductions may be spread out over tiem, if you're in a higher tax bracket or paying self-employment tax, the deductions will be worth more if you elect not to take a higher Section 179 deduction in the year of purchase.  You'll have to crunch the numbers and consider the time-value of money.  Keep in mind that you don't have to write off the entire asset.  If a machine cost $10,000, you can claim the Section 179 expense option on $4,000 and take regular depreciation over time on the remainder.

Consult you professional tax advisor on the best way to take advantage of this deduction, if at all, for the 2009 tax year.

This material is for informational purposes only and not intended and financial, legal or tax advice. Please consult your finance, legal or tax professional to confirm the accuracy of all information. Quickbooks is a registered product of Intuit.

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