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Year End Planning for Section 179 Deductions

December 17, 2013 Leave a comment

The IRS is making changes regarding the annual election under Section 179 of the Internal Revenue Code (the “Code”), often referred to as the “Section 179 election” or the “Code Section 179 election.” For 2013 tax returns, the allowable 179 expense election is $500,000. For 2014, the allowable 179 expense election will be reduced to $25,000. This represents a significant decrease in allowable 179 deduction available for you in 2014. This reduction should be taken into consideration for 2013 year-end planning and budgets for the subsequent 2014 year. Please consult your tax advisor regarding your specific situation and how you can plan accordingly.

Section 179 Overview

Generally, the cost of property placed in service in a trade or business can’t be deducted in the year it’s placed in service if the property will be useful beyond the year. Instead, the cost is “capitalized” and depreciation deductions are allowed for most property (other than land), but are spread out over a period of years. Capitalization delays the tax benefits of business expenditures. For example, you may spend $50,000 on a new computer system today, but must spread your depreciation deductions over several years. That’s why the election to take immediate deductions is valuable.

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