Businesses seeking to increase deductions by acquiring machinery and equipment before year-end have an impressive array of tools to work with:
- Generous, up to $500,000, expensing under IRC Sec. 179,
- A liberal, up to $2,500, expensing safe harbor for small businesses, and
- First year 50% bonus depreciation.
The bonus depreciation also applies to leasehold improvements, which include the cost of interior qualified improvements to non-residential property after the building is placed in service. In addition, the IRC Sec 179 expense deduction is allowed for qualified leasehold property, qualified restaurant property and qualified retail improvements.
On top of that, the Sec 179 allowance applies to off-the-shelf software and air conditioning units (but not residential rental air conditioning).
Armed with these tools, and careful planning, a small business has the opportunity to legally manipulate the taxable profit of the business. However, to accomplish that end, all the machinery, equipment and improvements must be purchased and placed in service before the end of the year.
If you need assistance planning your year-end purchase strategy to minimize your 2016 tax liability, please call this office.