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5 overlooked tax breaks for small businesses
Bill Bischoff / Wall Street Journal / February 6, 2013
Commentary: Congress extended and expanded several key deductions
Last month’s fiscal-cliff legislation included lots of tax provisions. Media attention has focused heavily on changes that affect individuals. But the new law also provides some valuable tax-saving breaks for businesses. Here’s the most important stuff to know for your outfit’s 2013 tax year.
Generous Depreciation Deductions for New and Used Assets
The Section 179 depreciation deduction privilege allows eligible businesses to deduct 100% of the cost of qualifying new and used assets in Year 1. For qualifying assets placed in service (set up and ready for business use) in tax years beginning in 2013, the fiscal-cliff legislation set the maximum Section 179 deduction at $500,000 (same as for 2010-2012). Without this change, the Section 179 maximum deduction for 2013 would have been only $25,000.
The $500,000 and $250,000 allowances are reduced if your business places in service over $2 million worth of assets that would otherwise qualify for Section 179 deductions. This phase-out rule usually only affects larger businesses.
Warning: Unlike 50% bonus depreciation deductions (explained below), Section 179 deductions cannot exceed the taxpayer’s business taxable income calculated before the Section 179 deductions. In other words, Section 179 deductions cannot create or increase an overall business tax loss for the year. Special rules apply to unincorporated businesses (sole proprietorships, partnerships, and LLCs) and S corporations. Consult your tax pro for details about how the Section 179 deduction rules work and whether your business can benefit.