Companies that have made large purchases and updated their truck or mowing fleet can save on annual taxes by taking advantage of two IRS codes, both of which could be dumped next year.
IRS Section 179 allows small businesses to deduct the full purchase price of equipment bought this year even if it has been financed or leased. "Usually what you have to do is depreciated it over five years," says Dan Gordon, owner of Wealth Depot, an accounting firm based in New Jersey that caters to pest control and lawn care contractors. "This code says that in the year of purchase you can expense the whole think for the year. The beauty of that is you don't have to pay for it this year. You can finance it for five years, but you get the whole deduction this year."
The maximum deduction for 2012 is $139,000. Business equipment like vehicles, machinery, computers, software, even office furniture is covered under this code.
Bonus appreciation is a second option that works similarly to 179 and allows businesses to recoup costs on certain capital expenditures. For 2012, the code allows companies to expense 50% of the cost of their depreciable purchases. This code is set to expire this year.
For those companies that have a healthy profit and expect to pay taxes, using these strategies could be savvy method to purchase equipment and still have money at the end of the year.
"If I'm in a 35% tax bracket, for every $1 I spend, I'm going to get 35 cents of benefit," he says. "But it's still going to cost me 65 cents. If you don't need it, then don't do it."
While this helps trim taxes in the short term, a company's tax bill might actually be higher in later years. Still, it's worth talking with your accountant and considering these codes that might not be around much longer.