Section 179 deductions for leasing or purchasing new equipment in 2008 and 2009 were extended into 2010 in accordance with the “Hiring Incentives to Restore Employment” (HIRE) Act of 2010. Manufacturing companies of all sizes can take advantage of the Section 179 tax incentives to assist in lowering overall operating costs. When taking advantage of the Section 179 deductions, companies essentially gain more capital and also acquire the manufacturing equipment they need. What is the Section 179 deduction and how does it work? When taking Advantage of the Section 179 deduction, the IRS allows companies to deduct the full purchase price of qualified purchased or financed equipment during the tax year. The full purchase price is deducted from the company’s gross income. As an example in years past, if a business purchased a manufacturing machining system valued at $100,000, the business would be able to write-off $10,000 a year for 10 years through depreciation. With the implementation of Section 179, business owners can now write-off the entire equipment purchase price corresponding to the year of purchase. The Government’s purpose for instituting Section 179 was that if companies couldwrite-off the entire amount, companies might purchase additional equipment that same year instead of waiting. There are limitswith taking advantage of Section 179 tax deductions. The total amount allowed to be written off in 2010 is $250,000 and is limited to $800,000 worth of purchased equipment. After spending $800,000, the dollar- for-dollar rate begins to phase out, therefore, making the Section 179 tax incentive most attractive to small and medium-size companies. To qualify for Section 179 tax deductions, a company must purchase or finance less than $800,000 in company equipment and the equipmentmust be placed into service between January 1, 2010 and December 31, 2010. Qualifying company equipment eligible for Section 179 deductions include equipment such asmachine tools or machine tool accessories purchased for company use. Leasing new equipment allows companies to take full advantage of Section 179 deductions. The benefit of a non-tax capital lease is that companies can apply Section 170 deductions but make smaller payments. Companies can lease and write-off $250,000 worth of equipment in 2010 without actually spending $250,000 in 2010. Examples of non-tax capital leases include a $1.00 Buyout or a 10%Purchase Upon Termination (PUT) lease. The amount a company saves in taxes may be more than the total of the first year’s payments. Companies may also obtain an equipment loan by using an Equipment Finance Agreement (EFA) and still take advantage of the Section 179 deduction. The Section 179 deduction was enhanced by the “Economic StimulusAct of 2008” and was also extended an additional year by the “American Recovery and Reinvestment Act of 2009.” From there, the Section 179 deduction was extended into 2010 by the “HIRE Act of 2010.” This extension gave companies an incentive to invest in themselves by purchasing or leasing new equipment. To take advantage of the Section 179 deduction, companies will need to complete Part One of IRS form 4562. To find out additional information regarding 2010 Section 179 tax incentives and to assist prospective equipment buyers estimate savings, youmay visit www.section179.org
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