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There is a way to get around that problem. You simply do not end the year with a large amount of profit that is subject to taxation. Instead of retaining the profits for equipment he may purchase in the future, Joe needs to actually purchase that equipment. Then he can first year expense the entire amount spent on equipment. There is something that GWB did for small business owners that the general public is clueless about. He raised the amount you can first year expense out. That has actually helped the solvency of many small businesses. That solvency right now may be the backbone of our country, since large banks and credit based big businesses are struggling. That is what we have been doing for our incubator or micro businesses. We have been purchasing equipment and first year expensing it out. That way our taxation exposure is lowered and the assets of our businesses is increased. Hopefully in the futuree the businesses will be generating large enough profit margins so that we can afford to then take the hit via taxation as we expose more profits as cash gains.

Instead of retaining the profits for equipment he may purchase in the future, Joe needs to actually purchase that equipment. Then he can first year expense the entire amount spent on equipment.

I agree the changes GWB has made in this area have been great. As a tech company I understand there is a great deal of incentive to make those purchases in the current tax year. Apparently this one is getting even better, my accountant keeps reminding me that it's getting even more lenient to include purchases you 'commit' to make but are not actually executed (or something to that effect).

Though it does help, this tax break was put in to spur the economy not to neccessarily push business owners into making wise purchase decisions. As an owner myself you can feel the pull to make purchases before they are actually justified or needed just to get the tax benefit. It can be dangerous when all of sudden you find out you need that cash for payroll and the money is sitting over in the corner in the form of an idle machine you bought early for the tax benefit. :)

On balance, this one is a net benefit to business owners, it's once again the politicians manipulating the tax code to achieve an end goal.

Something that I learned on my daddy's knee. When incorporating, leave all physical assets in a sole-prop or partnership & lease it to the corp at a “fair market rate”.

As you said, equipment purchases are timed to the tax year. Which entity buys new equipment depends on which one will get the best tax benefit. Also, the corp can buy from or sell to the sole-prop.

Great care must be taken to prove you haven't pierced the corporate veil & all of your transactions, meaning they have to be done in a way that protects the corporation's interest. You do this by making sure you “pay” fair market value in all transactions.