5 Ways to Maximize Tech Tax Breaks Under Section 179

5 Ways to MaximizeFederal tax law allows businesses to take a tax deduction for technology purchases every year. This is a great financial benefit companies both large and small that have a need to keep up to date.

Section 179 of the tax code allows companies to immediately write off up to $25,000 in technology, off-the-shelf software and other equipment in 2014 as part of the reinstatement of 55 tax breaks at the end of this past year. It’s great that businesses can do this, but it pays to know the ins and outs of the tax code to best take advantage of its benefits. Wylie Wong, in an article in BizTech gives us 5 ways to take advantage of these breaks.

1. Make buying decisions based on your business’s needs, not on the amount of the tax deduction.

If you need technology or equipment to grow the business, then buy it. Even if you don’t get the full deduction the first year, you can still deduct the remaining costs under the regular depreciation schedule over the next four years.

On the flip side, don’t purchase technology and other equipment just for the sake of having a tax write-off.

2. Off-the-shelf software means just that.

It’s software you can buy at any store, off the shelf. Section 179 does not allow businesses to deduct custom software or even cloud-based software they subscribe to because it’s not an asset that they own. Companies can deduct cloud-based software as a period expense.

3. Technology or equipment must be “placed in service” in the year you want to take the deduction.

You cannot order and pay for something on December 28, take delivery in 2016 and get the 2015 tax write-off.

4. Discuss different scenarios with your accountant.

Businesses can use Section 179 alone, in combination with bonus depreciation, or bonus depreciation alone…it’s important for company executives to engage their certified public accountants and explain their business plans for the next few years, so that the best tax benefits can be suggested.

5. Consider deferring to next year, under certain conditions.

“If you need the stuff and it’s late in the year, then it’s a wonderful time for tax deductions,” says Bob Hampton, a certified public accountant at Impart Financial in Fort Worth, Texas. “But if you can defer it to the new year because you expect to be in a higher tax bracket next year, then it is to your advantage to defer that expense.”

Read Full Article Here:

Questions? Comments? Let us know in the comments section below.

More information about Bassets eDepreciation software can be found at Bassets.net. While there you can register for our live webinar, download a free evaluation copy and get a personalized pricing estimate.

How To Fill Out Form 4562

How to Fill Out Form 4562If you are a business owner and purchased for business or investment purposes any equipment or machinery in 2014, bought a building or other property, or used a vehicle for business, you need to complete Form 4562, Depreciation and Amortization.

The following is an edited version of an article on Investopedia by Barbara E. Weltman that shows how to complete the form under the most common circumstances. (Read Full Article Here)

Part I

This part of the form is used to elect to expense tangible property, off-the-shelf software and certain types of realty (e.g., a greenhouse) placed in service in 2014 (called the Section 179 deduction). The maximum amount of this deduction is $500,000 for machinery and equipment (or $250,000 for qualified leasehold, retail and restaurant improvements).

Regardless of the deduction amount, you must apply the limitation that restricts the Section 179 deduction to the extent of your business profits (called “taxable income” without regard to certain deductions) for the year.

Part II

This part of the form is used for a special depreciation allowance (also called “bonus depreciation”), which is a 50% allowance claimed in the year that eligible property is placed in service. (For 2015, it’s been eliminated unless reinstated by Congress.)

Do not complete this part for:

Property that is not “eligible property.” Only new property, and not pre-owned property, is eligible.
“Listed property,” which is defined later (in Part V).

Part III

This section is for basic depreciation (other than depreciation for listed property, which is entered in Part V) under the Modified Accelerated Cost Recovery System (MACRS) that was created in 1986 and continues to apply today. A single entry on line 17 is used to report deductions for assets placed in service before 2014 (refer to your prior tax returns or any worksheets you may have retained to determine the amount to enter here).

Details about assets placed in service in 2014 are entered on lines 19a through 19i.

Part IV

This part of the form is merely a summary from parts I, II and III, as well as listed property in Part V. Line 22 is the key entry; it is the amount of depreciation that is deductible. The amount on line 22 is reported on the appropriate line of your tax return.

Part V

This section is for claiming write-offs for listed property: cars weighing 6,000 pounds or less, pickup trucks, computers and peripheral equipment, video recording equipment and other property specifically called “listed property.”

Section A is for the depreciation allowance for listed property, including the Section 179 deduction and bonus depreciation.

Section B is used to provide information about vehicles used by sole proprietors, partners or other “more than 5% owners” or people related to these business owners.

Section C is used by an employer to report certain information on employee use of company vehicles.

Part VI

This part is for any amortization you claim. Amortization costs that begin in 2014 are entered on line 42 (along with a description of the costs and other information); amortization for costs that began before 2014 is entered on line 43.

The Bottom Line

If you didn’t acquire any assets in 2014 and are merely depreciating the cost of assets purchased in prior years, you may not need to complete this form. Not sure about this, or whether you’re up to the task of handling this form? Review the IRS instructions to Form 4562 or consult a tax professional.

This article highlights the basic process of filling out Form 4562. For a step by step version Read Full Article Here:

Questions? Comments? Let us know in the comments section below.

More information about Bassets eDepreciation software can be found at Bassets.net. While there you can register for our live webinar, download a free evaluation copy and get a personalized pricing estimate.

Impact on Depreciation with American Taxpayer Relief Act

The American Taxpayer Relief Act of 2012 was finally passed by Congress and signed into law last week.  The business tax provisions contained in the bill are as follows:

  • 50% Bonus Depreciation has been extended through December 31, 2013
  • 50% Bonus Depreciation has been extended through December 31, 2014 for certain long production period and transportation assets
  • The 15 year recovery period has been extended from January 1, 2012 through December 31, 2013 for qualified:

Leasehold Improvement Property
Retail Improvement Property
Restaurant Property

  • Section 179 Expensing Election:

The maximum annual expense deduction for 2012 and 2013 has been increased to $500,000

The maximum annual investment limit for 2012 and 2013 has been increased to $2,000,000

For more information CCH has put together a Tax Briefing that covers the entirety of the American Taxpayer Relief Act of 2012 and is located at http://tax.cchgroup.com/downloads/files/pdfs/legislation/ATPR.pdf

Questions or comments about this post? We invite you to respond in the space below.

More information about Bassets eDepreciation software can be found at Bassets.net. While there you can set up a demonstration, download a free evaluation copy and get a personalized pricing estimate.

Form 4562 – Depreciation and Amortization

Today’s post is about IRS Form 4562 and is a companion piece to an earlier post: IRS Form 4562: Information and Instructions

The purpose of Form 4562 is to allow a business to claim a deduction for depreciation and amortization. This form is also used to expense certain property under Section 179 and list any automobiles or listed property with business or investment use.

The summary form consists of six sections over two pages. A stand-alone fixed asset software package like Bassets eDepreciation can produce all the detail necessary for the supporting schedules and summarize the totals for summary form. Here is an overview of information required on Form 4562:

 

 

Summary Form

  • Page 1
    • Part I – Election to Expense Certain Tangible Property (Section 179)
    • Part II – Special Depreciation Allowance and Other Depreciation
    • Part III – MACRS Depreciation Allowance for Assets Placed in Service During the Current Tax Year
    • Part IV – Summary
  • Page 2
    • Part V – Listed Property
    • Part VI – Amortization

Schedules

  • Part I – Election to Expense Certain Tangible Property (Section 179)
  • Part III – MACRS Depreciation for Asset Placed in Service During Current Tax Year
  • Part V – Listed Property
  • Part VI – Amortization allows deduct part of certain capital costs over a fixed period

 

For more information, visit the following links at the IRS web site.

Detailed Instructions: http://www.irs.gov/pub/irs-pdf/i4562.pdf

Form 4562: http://www.irs.gov/pub/irs-pdf/f4562.pdf

 

Questions or comments about this post? We invite you to respond in the space below.

More information about Bassets eDepreciation software can be found at Bassets.net. While there you can set up a demonstration, download a free evaluation copy and get a personalized pricing estimate.