Year-End Planning for Capital Purchases

Increased business spending for durable goods and capital items indicates that businesses are beginning to loosen their purse strings. From a tax standpoint, this is also a good time to consider capital purchases thanks to some extraordinary tax benefits available through the end of the year.  If your business is considering expansion or capital purchases, now may be the time to act—because without Congressional action, which is unlikely due to increasing Federal budget woes, the following business benefits will no longer be available after the close of 2009.

• Bonus Depreciation - Under the first-year bonus depreciation rules, taxpayers may generally claim an additional first-year depreciation deduction equal to 50% of the cost of qualified property placed in service in 2009.  This bonus depreciation deduction is allowed for both regular tax and AMT purposes.  Qualified property includes equipment and machinery that is purchased new and placed into service before the end of the year.

• Luxury Auto Limitations – Generally, vehicles weighing 6,000 pounds or less are classified as luxury vehicles, and the first-year depreciation is 20% of the cost of the vehicle but limited to a maximum of $2,960 ($3,060 for light trucks), regardless of the cost of the vehicle. However, for 2009, and at the taxpayer’s election, that maximum is increased to $10,960 ($11,060 for light trucks).  This increase is attributable to the bonus depreciation allowable for 2009.

• Enhanced Expensing (Sec. 179) - For equipment and machinery placed in service in 2009, the maximum expensing allowance is $250,000; it phases out when the cost of eligible property placed in service during the year exceeds $800,000.  Barring any change by Congress, the $250,000 and $800,000 amounts will reduce to $125,000 and $500,000 in 2010, and drastically decline to $25,000 and $200,000 in 2011.

• Quick Write-Offs for Most New Farming Machinery and Equipment – Those engaged in a farming business have the opportunity to depreciate qualifying new farming machinery and equipment over a 5-year period, instead of over the generally applicable 7 years.  To qualify, the original use of the property must have begun with the taxpayer after December 31, 2008, and before January 1, 2010.  Grain bins, cotton ginning assets, and fences or other land improvements are not eligible for the 5-year write-off period. 

Generally, farming machinery and equipment also qualifies for the increased expensing and bonus depreciation deductions previously discussed, providing extraordinarily large tax write-offs for 2009.   

• 15-Year Write-Off for Leasehold Improvements – Qualified leasehold improvements, restaurant improvements, and retail improvements completed and placed into service before January 1, 2010 may be written off over 15 years instead of the usual 39 years. This more than doubles the annual write-off for these improvements.

The options for writing off capital expenditures in 2009 make it possible to customize the write-off for virtually all businesses through careful pre-year-end planning.  So whether you wish merely to optimize the write-off for capital purchases already made, or you wish to plan additional purchases to take advantage of the special 2009 tax write-offs, give this office a call.  Together we can strategize to maximize your benefits and minimize your tax liability.  

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