I'm of the belief that you probably shouldn't set up your management or equipment plan based on cutting your tax bill. However, when the government turns around and pretty much hands you a big write-off, if it makes sense you may want to use it.
For years the Section 179 Deduction has been helping small businesses innovate by encouraging to buy equipment. When I was freelancing that's how I depreciated computer equipment for my business - it makes sense rather than spreading it out over time. In the past two years this deduction has ballooned as part of government efforts to stimulate the economy. And frankly, it could be a big deal for your operation given the tax incentives.
The deduction, which stands at $500,000 also includes some bonus depreciation write-offs if you're buying new equipment too. And the government jumped the limit on equipment purchases by $2 million.
I visited the website Section179.org to learn a little more. On that site they have a lot of background and information, including the total equipment costs - after tax writeoffs - for a $650,000 purchase.
Turns out you can write off the first $500,000, then you can take off 100% of whatever Schedule 179 didn't cover - so total first year depreciation on the $650,000 purchase would be the full value of the machine. The tax savings - at the 35% tax rate - is about $227,500, so your net total equipment cost would be $422,500 for that $650,000 machine.
Of course, on the farm we may be talking more like $200,000, as an example. Given that the Section 179 offers 100% depreciation for that machine, and a tax savings of $70,000, cutting the equipment cost to $130,000. It's a powerful incentive, depending on the income year you've had.
Just a few numbers to ponder as you sit at your office desk finalizing the bookwork on 2012.
Check out that website for more information on the deduction.
Remember, please consult your tax adviser before making any major moves - I am in no way a tax expert.