One of the nicest things Santa could leave you would be a fat tax break. Well, he has, but you have to spend money to get it.
This break falls under the standard year-end tax strategy of accelerating deductions. That means if you know you’re going to spend the money some time in the next several months, do it in December and reap the tax break a year early.
“Owner-operators should examine their taxable income, and if they have significant taxable income expected, they should consider the Section 179 deduction for equipment,” says Alabama accountant Ken DeWitt, who presents programs for Small Carrier University, sponsored by Commercial Carrier Journal and the Truckload Carriers Association. Typically, this would be a truck, trailer, computer – “anything that you’d use in your business except land or buildings,” DeWitt says.
The payoff: Section 179 allows you to deduct 100 percent of an equipment purchase, up to $24,000, in the first year, rather than depreciating it evenly over three to five years. If your purchase exceeds $24,000 – a truck, for example – you’re still entitled to deduct the first $24,000 in the first year.
How much you save depends on your tax bracket. If you’re in the 28 percent federal income tax bracket and have a 5 percent state tax, the amount you deduct ends up taking a third off your tax bill. At the next level (15 percent plus state tax), assume a fifth off.
Keep in mind your tax savings is only a deferral, not a permanent heist from Uncle Sam’s wallet. Still, that’s worth angling for, DeWitt notes. “It’s an interest-free loan for the next 12 months.”
Section 179 has been around for years, so your accountant is familiar with it. Before rushing into a big purchase before New Year’s Eve, check with him to ensure it’s wise for you.