 Timing
equipment purchases for your company
Tax Talk by George
Saenz • Bankrate.com
 Dear
Tax Talk,
My company's net profits were high in 2002 (approximately $125,000),
and I expect them to be about $65,000 lower this year. I am looking
to buy about $100,000 of equipment. If I buy the equipment new,
what would my total write-off amount be? Could I get just as much
write off every year until 2004 if I purchase an additional $100,000
in new equipment each year? Thanks. -- Frank
 Dear
Frank,
Your accountant should have talked to you before year-end to do
some tax planning. Ideally, you should have purchased about $24,000
in equipment before the end of 2002. This is known as the Section
179 deduction and represents the amount of equipment the Internal
Revenue Service allows you to write-off in full on your taxes instead
of having to claim annual depreciation deductions. For the 2003
tax year, the Section 179 amount goes to $25,000.
If you buy more than the allowable amount, the remainder is subject
to annual depreciation deductions. In addition, if most of your
equipment purchases occur in the last quarter of the tax year, your
depreciation deductions are limited. Normally you get one-half year
of depreciation in the year that you buy equipment. But if more
than 40 percent of your purchases are in the last quarter of the
tax year, those assets in the last quarter are only allowed one-quarter
of normal depreciation.
For example, if you buy $100,000 in equipment that is classified
for tax purposes as a five-year asset (such as computers), your
2002 deduction would be $24,000 in write-off plus 5 percent of $76,000,
or $3,800, for a total deduction of $27,800. The next year, when
you expect lower profits, you'll get a large deduction on the 2002
equipment because your deduction was limited in 2002.
Continuing the example, you'll get $28,800 on the 2002 computer
equipment plus a write-off on next year's $100,000 in additions.
Since you may not want such large write-offs in a year that your
profits dip, you should plan your equipment purchases to benefit
the most.
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