Small Biz Tax Law Turns Tax Loophole Into A Crater! 

by Wayne Davies, EA

In case you were too busy way back in 2003 to notice, our
beloved politicians passed another tax bill designed to put
more dollars in your pocket. 

If you are a Small Business Owner or Self-Employed Person,
there's one especially lucrative tax break. 

It's actually an expansion of a tax rule that's been on the
books for years. Known as the Section 179 deduction, the new
legislation takes this loophole and turns it into a
deduction big enough to drive a fleet of SUV's through. 

The Section 179 deduction enables the Small Business Owner
to deduct 100% of the cost of most business equipment, in
lieu of depreciation over several years. 

What's so great about that? 

Think about it like this: I've got a dollar and I'd like to
give it to you. You have two choices -- I give it to you
now, or I give it to you 5 years from now. 

Which do you prefer? 

Obviously, you'd rather have it now, right? 

And why is that? 

Because of what you learned way back in Finance 101:
something your banker calls "the time value of money." 

I'll spare you a boring textbook definition. Instead, let's
just assume we agree on this simple point: Is a dollar
worth more today or 5 years from today? 

It's worth more today, right? 

And that's why the Section 179 deduction is so valuable. 

Huh? 

Let's use an example to bring all this financial theory into
reality. 

You buy $5,000 worth of office equipment. Under normal depreciation rules, you wouldn't get to take a deduction for $5,000 in the year of purchase. Instead, you'd write off the $5,000 over 6 years -- a partial deduction in Year 1, a partial deduction in Year 2, etc. 

If you're in the 35% tax bracket, you get your $1,750 in tax
savings over 6 years. Yawn. That's a long time! 

You'd get your deduction, and the resulting tax savings, but
you'd have to wait 6 years to realize all the benefits. 

Section 179 says that if you meet certain requirements, you
can deduct the full $5,000 in Year 1, the year of purchase. So you reduce your taxes by $1,750 in Year 1. 

So let me repeat my question: Uncle Sam has $1,750 he'd
like to give you. When do you want it? All at once, or spread out over 6 years? 

That's the beauty of Section 179. 

Here's how it works. The maximum amount of business
property that can be immediately deducted rather than
depreciated has been increased over the past few 
years:

Year 2003 -- $100,000

Year 2004 -- $102,000 

Year 2005 -- $105,000 

Year 2006 -- $108,000

Year 2007 -- $125,000

Year 2008 -- $250,000

Year 2009 -- $250,000 

Year 2010 -- $500,000 

Year 2011 -- $500,000

Never liked depreciation? Well, you can pretty much kiss it
good-bye now. 

IMPORTANT: A few other requirements must be met to claim the
Section 179 deduction. Here's a brief overview: 

1. Most personal property used in a trade or business can be
deducted via Section 179. Most real property cannot. Typical
examples of personal property include: office equipment such
as computers, monitors, printers and scanners; office
furniture; machinery and tools. Real property means
buildings and their improvements. 

2. In 2012, unless new legislation is passed,
the Section 179 amount goes back down to $125,000. 

3. There are special rules regarding the use of Section 179
for the purchase of business vehicles. Check with your tax professional or visit the IRS website for details.

4. Your total Section 179 deduction is limited to the
business' annual profit. In other words, you cannot use the
Section 179 to create or increase a loss. 

This is known as the "taxable income limitation." For "C"
Corporations, this limitation is very cut and dried. But if
your business is an "S" Corporation, Partnership, LLC, or
Sole Proprietorship, it may not be as limiting as it seems.
For these non-"C" Corp businesses, the Section 179 deduction
can be used to offset both business and non-business income such as W-2 wages/salaries.

And if you're married filing jointly, the Section 179
deduction can offset your spouse's income, including W-2
income. 

Example: You start a new business that ends up with
a loss for the year of $5,000 (before taking the Section 179
deduction). Your spouse has W-2 income of $60,000. Even
though your business is unprofitable, you can still take the
full Section 179 deduction of $5,000 (again, assuming your
business is an entity other than a "C" Corporation). 

(Be sure to consult with your tax professional to get the
scoop on all the Section 179 rules.) 

Be sure to take advantage of this new loophole. A very nice
deduction just got expanded to monstrous proportions! 

Take advantage of it.

Have you heard about the recent tax law change that turned a small business loophole into a crater?

http://www.YouSaveOnTaxes.com/tax-crater.html

Want to know the biggest tax mistake you can ever make?  (And how to avoid it?) 

http://www.YouSaveOnTaxes.com/tax-mistake.html

Do you know why the most important business decision you probably never made is the key to paying thousands less in taxes?

http://www.YouSaveOnTaxes.com/tax-decision.html

About The Author:

Wayne M. Davies is author of three tax-slashing eBooks for small business owners and the self-employed:

** The Tax Reduction Toolkit **

29 little-known but perfectly legal strategies to reduce your taxes, postpone your taxes, and even avoid taxes altogether -- for small biz owners & self-employed people only!

http://www.TaxReductionToolkit.com

** Incorporation Tax Secrets Revealed **

How to save thousands in taxes by forming a corporation or LLC for your small business or self-employment activity. Discover the #1 Tax Secret of the Rich!

http://www.IncorporationTaxSecrets.com

** How To Incorporate Yourself For Free **

How to avoid paying $500, $1000, $1500 or more in lawyer fees by incorporating your small business all by yourself...for FREE!
http://www.HowToIncorporateForFree.com

Wayne's eBooks are available separately, or at a discount as a 3-volume set:

** The Ultimate Small Business Tax Reduction Guide ** 

Find out just how easy (and legal) it is to reduce your taxes by $2,000...$3,000...$4,000 or more! 
http://www.SmallBusinessTaxReductionGuide.com

To receive a free copy of Wayne's 25-page Special Report, 

"How To Instantly Double Your Deductions"

click here: 

http://www.YouSaveOnTaxes.com

www.YouSaveOnTaxes.com

A Division of Wayne M. Davies Inc.

4660 W. Jefferson Blvd., Suite 220

Fort Wayne, IN 46804

  (260) 459-3858 

Wayne@YouSaveOnTaxes.com

http://www.YouSaveOnTaxes.com

http://www.MagneticMarketing.biz

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