Year-End Tax Planning Tip: Purchase Assets In Your Business

If you expect a large net income from your business in 2016, then taking advantage of the IRS Section 179 expense deduction by purchasing assets before December 31 will help reduce the net income of the business for tax purposes. The Section 179 expense deduction allows a business to write off the cost the cost of up to $500,000 of eligible asset purchases in the year that the assets are placed in service. Assets qualifying for the Section 179 expense deduction include:

1. New and used computers, computer equipment, machinery, office equipment, office furniture, and vehicles.

2. Computer software purchased off the shelf.

3. Qualified restaurant equipment, retail improvements, and leasehold improvements.

For the year 2016, the $500,000 Section 179 expense deduction is reduced when qualifying asset purchases exceed a $2,010,000 investment ceiling. Also, this $500,000 amount is limited to the taxable income from your active trade or business. This means that if your business has a net loss in 2016, then the Section 179 election can’t be used and assets should be depreciated instead. Property lives for depreciating assets under MACRS include 5 years for vehicles, trucks, computers, and peripheral equipment and 7 years for office furniture, fixtures, and industrial equipment.

For more information about the Section 179 expense deduction, please contact us today.

If you have questions about starting, growing, or selling your small business, please contact us. As a CPA, Certified Business Advisor, Small Business Consultant, and Advanced Certified QuickBooks ProAdvisor, we specialize in working with small business owners just like you and provide tax, accounting, financial analysis, management, business planning, and small business advisory services. We can advise you on how to start, manage, grow, and terminate a small business. For more information, call (727) 391-7373 or else visit us on the web at



section179Businesses can still take advantage of Section 179 expensing before December 31, 2015 for two reasons. First, in 2015, businesses can elect to expense (deduct immediately) the entire cost of most new equipment up to a maximum of $25,000 for the first $200,000 of property placed in service by December 31, 2015. The Section 179 deduction cannot exceed net taxable business income. In addition, unless Congress reauthorizes it, the bonus depreciation expired at the end of 2014 and is not available for 2015.

While most businesses follow a calendar year, for those that don’t there is an exception to the $25,000 cap that allows those businesses to take advantage of the $500,000 Section 179 benefit. However, only businesses whose calendar year begins in 2014 and ends in 2015 can take advantage of this.

Qualified property is defined as property that you placed in service during the tax year and used predominantly (more than 50 percent) in your trade or business. Property that is placed in service and then disposed of in that same tax year does not qualify, and neither does property converted to personal use in the same tax year it is acquired.

Note: Many states have not matched these amounts and, therefore, state tax may not allow for the maximum Federal deduction. In this case, two sets of depreciation records will be needed to track the Federal and state tax impact.

Timing. If you plan to purchase business equipment this year, consider the timing. You might be able to increase your tax benefit if you buy equipment at the right time. Here’s a simplified explanation:

Conventions. The tax rules for depreciation include “conventions” or rules for figuring out how many months of depreciation you can claim. There are three types of conventions. To select the correct convention, you must know the type of property and when you placed the property in service.

1. The half-year convention: This convention applies to all property except residential rental property, nonresidential real property, and railroad gradings and tunnel bores (see mid-month convention below) unless the mid-quarter convention applies. All property that you begin using during the year is treated as “placed in service” (or “disposed of”) at the midpoint of the year. This means that no matter when you begin using (or dispose of) the property, you treat it as if you began using it in the middle of the year.

Example: You buy a $40,000 piece of machinery on December 15. If the half-year convention applies, you get one-half year of depreciation on that machine.

2. The mid-quarter convention: The mid-quarter convention must be used if the cost of equipment placed in service during the last three months of the tax year is more than 40 percent of the total cost of all property placed in service for the entire year. If the mid-quarter convention applies, the half-year rule does not apply, and you treat all equipment placed in service during the year as if it were placed in service at the midpoint of the quarter in which you began using it.

3. The mid-month convention: This convention applies only to residential rental property, nonresidential real property, and railroad gradings and tunnel bores. It treats all property placed in service (or disposed of) during any month as placed in service (or disposed of) on the midpoint of that month.

If you’re planning on buying equipment for your business before year end, call our office so we can advise you how to take full advantage of these tax rules.

As a CPA, Accredited Small Business Consultant and Advanced Certified QuickBooks ProAdvisor, we specialize in working with small business owners and provide tax, accounting, financial analysis and management, and small business consulting services. We can help you to start, manage, and grow your small business. Call us today at (727) 391-7373 or visit us at