Certain buiness expenses have to be written off over a number of years. Others may be expensed ad they occur, office supplies, phone bills, power bills etc. Large ticket items are ‘’written off’’ over a longer period of time as a favor to the tax collecter, not the business.
The general rule requires you to take the deductions through depreciation. Depreciation means that each year, you can only deduct part of the cost of property. Usually this is no more than one-third of the cost each year. For example, if you purchase a $3,000 photocopier for your business, the general rule will allow you to deduct $1,000 per year for three years.
Section 179 of the Code contains an exception to the general depreciation rule. Under certain limitations, discussed below, you may be able to deduct up to the full cost of property you purchase for your business in one year rather than in three or more years. This increased deduction can save you a lot of income taxes.
Although Section 179 has been around for awhile, Congress recently liberalized it by increasing the amount of the deduction. For example, in 1992, the deduction was $10,000 per year. Starting in 1993, the deduction jumped to $17,500. In 1999, the deduction is $19,000. The deduction will increase to $20,000 in 2000, $24,000 between 2001-2002, and $25,000 in 2003 and thereafter (unless Congress tinkers with it again). In other words, provided that you otherwise meet the requirements of Section 179, during 1999, you can spend $19,000 on property for your business and receive a $19,000 federal income tax deduction.
The Section 179 deduction is limited in two ways. Because Congress geared the Section 179 for small businesses, the deduction is reduced dollar-for-dollar to the extent that you spend more than $200,000 on business property during any year. For example, if you spend $210,000 on business property during 1999, your Section 179 deduction will be reduced by $10,000, and so would be $9,000, not $19,000.
The Section 179 deduction is also limited by your income. You cannot take the deduction to the extent that it exceeds your taxable business income. For example, if in 1999, you spend $15,000 on business property, but your taxable business income is only $10,000, your Section 179 deduction will be limited to $10,000.
So, you see, the code already exists for businesses, if they meet the requirements, to deduct 100% for equipment.
And, he’s a graduate of Hawvard?