Bonus Depreciation and Section 179 Expensing Top Year-End Planning

It’s time to start thinking about year-end tax planning. Two of the easiest, and maybe most effective, year-end planning opportunities are 100% depreciation and Section 179 expensing. These techniques may not be available or may be significantly limited in 2012.

100% bonus depreciation is currently allowed for qualified property acquired and placed-in service during 2011. Generally, qualified property is new tangible personal property with a class life of 20 years or less. Most new furnishings, fixtures and equipment will qualify. The entire cost of the property can be depreciated in 2011 without limitations. In 2012, bonus depreciation returns to 50% of qualified property.

Section 179 allows a taxpayer to expense the cost of certain assets instead of depreciating them, but is subject to limitations. Unlike 100% bonus depreciation, Section 179 expensing also applies to used property. For 2011, the maximum amount that can be expensed is $500,000. This is set to return to $125,000 in 2012.

For tax planning calculations, taxpayers should review purchases made this year and calculate projected tax depreciation reflecting 100% bonus depreciation and Section 179 expensing. Taxpayers also need to review fixed asset needs to determine whether it will be beneficial to purchase qualified property by December 31, 2011 to take advantage of these tax saving strategies. Some assets that qualify may take time to acquire, receive and place in service, so start year-end tax planning now, not in December.