Give Your Business a Bonus

Jerry Schmit, Tax Senior Manager   email
November 2009



Advantageous tax laws are expiring on December 31, 2009. It is important for businesses to analyze the timing of fixed asset acquisitions prior to the end of 2009.

The current federal tax law allows “bonus” first-year depreciation on assets placed in service prior to January 1, 2010. Barring an extension by Congress, the bonus first-year depreciation will not be allowed in 2010. Bonus depreciation allows for an immediate depreciation deduction of 50 percent of the cost of eligible assets, resulting in considerable acceleration of the depreciation deduction. For example, a $100,000 eligible asset with a 5-year life will result in a $60,000 first-year tax depreciation deduction if the asset is placed in service in 2009. However, this same asset would receive only a $20,000 first-year depreciation deduction if placed in service in 2010. Eligible assets generally include personal property but exclude real property (i.e., land and buildings). Additionally, in order for an asset to be eligible for bonus depreciation it must be the first year the asset has been placed in service (acquisition of used property does not qualify).

As in past years, Section 179 expensing election is available to write-off certain fixed asset acquisitions in the current year. The maximum amount of Section 179 expense which can be taken in 2009 is $250,000. This limitation is reduced when overall fixed asset additions exceed $800,000. In 2010, the available amount of Section 179 expense will be reduced to $134,000, and the overall fixed asset limitation will also reduced to $530,000.

An analysis of your fixed asset acquisitions and the timing of placing these assets in service should be reviewed before the end of the year to optimize the federal tax depreciation deduction. If you would like assistance with this analysis, please contact Jerry Schmit (262/754-9400).