John Bullis: What about depreciation deduction in 2014?
August 18, 2014
For 2012 and 2013 if your business purchased equipment, you could claim the entire cost as a deduction in the year of purchase — up to $500,000.
Until the law for 2014 is changed, the Section 179 deduction is limited to $25,000.
For 2014, we just don't know yet. Congress may elect to make the Section 179 depreciation deduction the same as in 2013, but they have not acted on that yet.
I guess Congress has just been too busy to take action that would help business owners know what the tax rules will be for 2014 and later years.
The Section 179 deduction is for new and used equipment. You can choose to take the deduction for all of the equipment purchases, or just the items you designate. Of course, there are some rules to observe, but it is a way for business owners to reduce their tax for that year.
By taking the full cost of equipment purchased in one year, the future depreciation expense deductions are zero. It is just a timing matter. You can't claim more than your total cost.
If your 2012 or 2013 returns did not claim Section 179 deduction, it is possible to amend and get refunds (if you paid tax).
But your future deductions for depreciation expense will be reduced or eliminated. It is sort of "pay me now or pay me later" kind of item.
This deduction is mostly for "small" businesses. If you buy more than $2 million of equipment, the deduction is not available.
If you lease equipment that provides you the opportunity to buy the item at the end of the lease period for only $1 or some small amount, it is really a purchase for tax purposes. You can call it a lease, but it is just a way to buy equipment with financing (monthly payments). Section 179 can apply to that item.
If you sell the item before the estimated useful life, there will probably be some "recapture" of part of the Section 179 deduction. Hopefully the equipment you buy will be of benefit and value to you for many years.
The reason for the deduction was to help business owners create jobs.
Maybe Congress just doesn't care enough about the unemployment problem to clarify what the tax laws will be for year 2014 and later.
Did you hear?
"The only difference between adults and children is the size of the sandbox," by Evan B. Welch.
John Bullis is a certified public accountant, personal financial specialist and certified senior adviser who has served Carson City for 45 years. He is founder emeritus of Bullis and Company CPAs.