Tax Breaks for Capital Equipment
Your business' capital equipment can include computers, manufacturing equipment and vehicles. Capital equipment refers to fixed assets you use to manufacture a product, provide a service or use to sell, store and deliver merchandise. Purchasing equipment of this sort is a long-term investment, and tax laws treat capital equipment differently from short-term expenses, such as business meals and office supplies.
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Wear and Tear
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One way to claim a tax break for capital equipment is to take a write-off every year for the decline in the equipment's value over time. To depreciate an asset, you claim a loss every year over the course of its usable life; to amortize it, you deduct the losses over a fixed number of years. If you spend money on repairs or maintenance, you can claim those costs as a deductible business expense for the year you spend the money.
Section 179
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Section 179 offers you an alternative to depreciation and amortization: Deduct the equipment purchase as an expense the year that you buy it. You can claim a 179 tax break for computers, software, machinery, office equipment and furniture. You can't claim a break for most buildings -- storage facilities and agricultural structures are an exception -- or for investment or rental properties. Choosing the deduction is optional: If several years of depreciation is a better write-off for your company, you can take that instead.
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Changes
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In 2010, the Small Business Jobs Act authorized businesses to claim an accelerated 50 percent first-year depreciation deduction for assets placed into service in 2009 and 2010. The Tax Relief Act of 2010 offers a 50 percent depreciation for qualified assets bought in 2012. The bills also increased the Section 179 deduction for property placed in service in 2010 and 2011: Your company can write off up to $500,000, compared to $25,000 a few years ago.
Improvements
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The tax code distinguishes repairs and maintenance from improvements to your equipment. Replacing your truck's alternator is a repair; installing a new, more efficient engine is an improvement. Repairs keep your equipment running; improvements extend the working life span a few more years. Although you write off repairs as a regular business expenses, you treat improvements as a new capital-equipment expense, subject to depreciation or amortization. The IRS has a list of guidelines for distinguishing one from the other.
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