One of my manufacturing clients located in Santa Ana called with a “simple” question.
“I am looking to make a significant investment in equipment this year and want to know how much can I get in tax write offs”?
Seems like a simple question!
However, there are many different areas of the Federal Tax Code which could have an impact on the answer to this “simple” question. One of these areas is Section 179, which allows taxpayers to claim a current expense on the cost of qualifying purchases made during the tax year.
For a number of years prior to 2014, the annual limit which could be expensed was set at $500,000. Starting in 2014 the limit fell to $25,000. Government Officials assured the public that the limit would be raised back to $500,000 for 2014. Well, on December 16, 2014 the government made good on their assurance and raised the limit back to $500,000. This change was made retroactive back to January 1, 2014. Business owners had about two weeks to take action with a clear understanding of the tax impact! Of course, the Government did not extend this benefit into 2015 or future years. Right now business owners are uncertain as to how much a purchase of equipment might benefit them this year. Will they be able to write off $500,000 like in prior years or will they be limited to $25,000 based on the law as it exists today? It is difficult to foretell at this time when or even if the Government will act on this issue for 2015. For those businesses which need the tax break in order to afford the equipment, this is a very uncertain time. Do I take a chance and purchase now? Or, do I wait until we get an indication which way Government may go on this issue? This type of last minute, retroactive legislation is not only bad for businesses who are trying to make good financial decisions, but also hurts the manufacturers of equipment who are missing out on sales which are being deferred until businesses have a clear idea of what the tax law will be in this area.
Remember that the amount you can currently write off under Section 179 is $25,000.
Please contact your LSL Advisor at 714.672.0022 to get more information or assistance with your equipment write-off plan.
By: Edward J. Lieber, CPA
