Contact Us
Firm Overview
Why Legend Is Different
Client Types
Professional Biographies
Frequently & Rarely Asked Questions
Risk Spectrum
Investment Strategies
Second Opinion
Global Investment Pulse
Event Calendar
Press Center
Legend News
Clients Only
Career Opportunities
Newsletter Sign-up
Site Search
Site Map
Tell A Friend About This Website
Informational Booklets   


Phone: (412) 635-9210
  (888) 236-5960
Connect With Legend:
Subscribe to me on YouTube

Squeeze More Out Of Bonus Depreciation Deductions

Unless Congress acts relatively soon, “bonus depreciation” soon will go the way of the five-cent cup of coffee and the good ten-cent cigar. This valuable tax break for businesses is scheduled to be wiped off the books completely on January 1, 2013—and probably for good.

Although you might hold out hope of a reprieve for these deductions, right now you have to play the cards you’re dealt. This could be the last year you can claim bonus depreciation, so plan for it accordingly. Making a big purchase this year rather than next year could result in substantial tax savings.

Bonus depreciation has been available to taxpayers a couple of times in the past. In one recent incarnation, 50% bonus depreciation was authorized for the cost of qualified new, but not used, business property placed in service in 2008. (This tax law provision was extended through 2010). For this purpose, “qualified business property” included property with a regular cost recovery (depreciation) period of 20 years of less; qualified leasehold improvement property; and certain software; and water utility property.

As part of the 2010 Tax Relief Act, Congress reinstated and enhanced the bonus depreciation tax break by authorizing: 

  • 100% bonus depreciation deduction for qualified business property placed in service from September 9, 2010, through December 31, 2011, (through December 31, 2012, for certain other types of property); and
  • 50% bonus depreciation for qualified business property placed in service from January 1, 2012, through December 31, 2012.

That’s where we stand now. Barring any new legislation extending or modifying bonus depreciation—and that doesn’t seem likely to happen—you can still seize a 50% bonus depreciation write-off this year if you place qualified property in service before 2013. 

Combine two tax breaks. While bonus depreciation is still available, a business owner can combine it with a Section 179 election to create a powerful one-two tax punch for 2012.

Under Section 179 of the tax code, your business currently can deduct the cost of qualified business property placed in service during the year, up to a specified maximum. For Section 179 purposes, the definition of “qualified business property” is more expansive than it is for bonus depreciation. It includes most types of tangible personal property. The property may be new or used. 

The maximum Section 179 deduction was increased gradually from $25,000 to $500,000 before it was halved and then cut to its current limit of $125,000 (inflation-indexed to $139,000 for 2012). In addition, if the total cost of property placed in service during the year exceeds an annual threshold, the maximum Section 179 deduction is reduced on a dollar-for-dollar basis. This dollar threshold has been adjusted by legislation coordinated with the maximum Section 179 allowance. The reduction begins at a threshold of $500,000 (inflation-indexed to $560,000 for 2012.) 

Not only can you claim bonus depreciation for the same property that qualifies for the Section 179 deduction, you can write off the remaining balance, if there is one, under the regular depreciation rules governed by the Modified Accelerated Cost Recovery System (MACRS). These deductions are claimed in the following order: (1) Section 179, (2) 50% bonus depreciation, and (3) regular depreciation.

Suppose that in 2012, your business buys new computers (considered five-year property under MACRS) that cost a total of $189,000. For simplicity, we’ll assume you don’t buy any other business property this year. Here’s how your deductions break down in three steps:

1. Your business can deduct $139,000 of the cost under Section 179. That leaves a balance of $50,000.

2. Your business can claim 50% bonus depreciation on that $50,000 balance. That amounts to a write-off of $25,000, and leaves a new balance of $25,000.

3. Finally, your business can take a first-year regular depreciation deduction for 20% of the balance. That amounts to a write-off of $5,000.

By taking full advantage of the tax breaks in effect in 2012, your business is able to write off a grand total of $169,000 ($139,000 + $25,000 + $5,000) of the $189,000 cost!

Note that other special rules may limit deductions for cars and other vehicles used in your business. 

Of courses, taxes aren’t the be-all and end-all for small business owners. But you should be aware of the potential tax benefits involving bonus depreciation in 2012.

This article was written by a professional financial journalist for Legend Financial Advisors, Inc. and is not intended as legal or investment advice

  • New Deduction Rules For Business Owners
  • ''New and Improved'' QSBS Tax Break
  • Six Tax Items For Small Businesses
  • Now Is A Perfect Time To Open A New Business
  • Do You Know If Your Business Really Is Small?
  • 4 Estate Issues For Business Owners
  • Self-Employed? Map Out Tax Details
  • 10 Easy Steps To Take If Opening A New Business
  • To Buy Or Not To Buy: That Is The Business Franchise Question
  • Ever Considered Helping Your Adult Child Open A Business?
  • Do You Know What Kind Of Business Not To Open?
  • Do You Plan To Move Your Business To A New State?
  • Dispel These 7 Popular Myths About Retirement
  • 4 Retirement Plan Options For Your Small Business
  • Are Stocks Overpriced And Forming A Bubble?
  • 4 Steps To Creating A Dynamic Business Budget
  • Can An Underfunded Small Business Startup Be Successful?
  • What Happens If You Have Excess Capital Losses?
  • This Is Not Granddad's 'Defined Benefit Plan'
  • Despite Much Pessimism, Slow Growth Persists
  • How To Take Your Section 179 Deduction To The Max
  • Squeeze More Out Of Bonus Depreciation Deductions
  • A Common Error In Powers Of Attorney
  • For The Self-Employed: 4 Retirement Plan Choices
  • Which States Are The Most Friendly To Businesses?
  • How Economic Myths Distort Investment Outlook
  • Don't Forget About Roth 401(k)
  • REITs: A Great Diversification Investment
  • Shopping For A Bank Account That Pays The Highest Possible Rate Of Interest
  • The Twenty Top Tax Breaks In The New 2010 Tax Act
  • Investing Defensivley Does Not Mean Deserting Stocks
  • 401(k) Alternatives For Business Owners
  • Tax Court Okays Deducting Cost Of MBA
  • Employers Find Ways To Mitigate Liability On 401(k)s
  • Working Longer: What's A Post-Retirement Job Worth?
  • Slash Taxes By Swapping Like-Kind Assets
  • Transferring The Family Business To Your Heirs
  • Business Owners Get Big Tax Cuts In Recovery Act
  • Move Fast To Corral Emergency SBA Loans
  • Risk Management
  • Estate Taxes And The Obama Administration
  • Gifting A Business Can Cut Estate Taxes
  • A Little Bond Logic Yields Insights
  • Avoiding The IRA Rollover Crackdown
  • Ruling Cites Business Owner Responsibility to 401 (k) Plans
  • Ruling Cites Business Owner Responsibility to 401(k) Plans
  • How Much Is Your Business Worth?
  • Managing Cash Flow In Tight Times
  • When Times Are So Scary, Opportunities Emerge
  • Avoid Being Accused Of Insider Trading
  • Lifecycle Funds May Pose A Hidden Danger
  • Funding A Friend's Business Venture
  • Beware Of Social Security Identity Theft
  • Regulatory Guidelines Update
  • Small Business And Work Opportunity Tax Act
  • The Oil Patch Profit Squeeze
  • Free Credit Reports Available Online
  • Understanding the Importance of a Fiduciary Standard
  • Energy Systems Scale and Timeline
  • Timber As A Liquid Investment
  • Timber Facts
  • Emerging Market Food Consumption Growth Equals Rising Prices
  • Bank Loan Funds - A Primer
  • Ethanol: Salvation or Panacea?
  • Emerging Market Food Consumption Growth Equals Rising Prices
  • A Primer On Managed Futures
  • Identity Theft: What Documents Should You Shred Or Store?
  • The Case For Industrial Metals
  • Total Credit Market Debt (All Sectors) As % Of U.S. GDP
  • Know The Score
  • REITS: A Very Good Portfolio Diversifier, But Should You Invest In Them?
  • Does Investing Internationally Still Diversify Your Portfolio
  • Another Way To View The Current Valuation Of REIT Sector
  • Understanding Risk-Preparing For The Unseen
  • Bank Loan Funds: A Great Fixed Income Investment As Interest Rates Rise
  • What Is Shorting Expense?
  • How Dangerous Is A Dollar Crash?
  • How Volatile Can The Stock Market Be?
  • GMO 7-Year Asset Class Return Forecast Is Bleak
  • Too Many ''Phish'' In The Sea
  • Identity Theft In The New Year
  • Ways To Improve The Score
  • To Reinvest Or Not To Reinvest
  • Why Not Alternative Fixed Income Investments?
  • Just How Expensive Is The Market?
  • Beware of Brokerage Firms' Misconduct
  • Identity Theft : Correct Those Credit Reporting Errors
  • Risk-Controlled Investing
  • Q & A With Robert Arnott
  • Identity Theft : Applying For Credit? Better Check Your Credit Report First
  • Identity Theft: Everyday Prevention
  • Identity Theft : Help Is On Its Way
  • Identity Theft: Tips To Protect Yourself
  • Identity Theft : Don't Fall For That E-Mail!
  • Identity Theft : One More Reason To Protect Your Credit
  • Identity Theft: A Note About Social Security Numbers
  • What Do Rising Interest Rates Mean For Money Market Yields?
  • Exit Gracefully: How Business Owners Should Plan For A Comfortable Retirement
  • Section 529 Plans Are Popular But Not The Only Way To Go
  • The Importance Of Commodities In A Portfolio
  • A Tale Of Two Hedges
  • IRS Refuses Change Of Section 179 Election To Expense Depreciable Property
  • Small Businesses Need To Be Aggressive On Costs
  • Your Medical File Report May Need A Check-Up
  • Do It Yourself Tax Preparers Watch Out: Tax Answers From IRS Centers Oftentimes Are Incorrect And/Or Insufficient
  • Home Office Deductions: Hoops To Jump Through
  • Property Tax Challenges Should Not Be Overlooked
  • The IRS Will Follow Your Wealth To The Ends Of The Earth
  • Year-End Tax Defferal Planning
  • How To Find A Great Financial Advisor
  • Is It Time To Find A New Financial Advisor?
  • What Is Risk?
  • 4 Steps To A More Secure Investment Portfolio For Your Retirement
  • Traditional Investing May Decrease Your Retirement Lifestyle
  • Year-End Tax Planning Can Help Generate High Return On Investment
  • Businesses Receive Temporary Depreciation Bonus
  • Understanding Deflation
  • Is Your 401(k) Plan A Failure?
  • Succession Planning: Developing A Plan For Your Business
  • The ERISA Retirement Plan Law Spells Out Fiduciary Issues
  • Evaluating The Quality Of A Company's Earnings
  • Investing In Times Of Uncertainty And Risk: The Importance Of Diversification
  • Tax Issues To Consider When Buying A Long-Term Care Policy
  • Yesterday's Great Companies
  • Businesses Should Be Aware Of States' Use Taxes
  • Expanded Retirement Plan Contribution Limits Create New Opportunities For Business Owners
  • Succession Planning: Developing A Plan For Your Business

  • ©2018 Legend Financial Advisors, Inc.®. All rights reserved.