Congress adjusted depreciation rules for 2009 to give businesses the incentives to invest in equipment and other capital purchases. Thus buying assets and putting them into use this year can result in huge write-offs. The 2009 bonus depreciation rules allow businesses to claim 50% of the asset's cost in 2009, with the rest being depreciated the regular way. This applies to assets with 20 year (or less) usable lives, and does not apply to most buildings or real estate.
Firms can also expense up to $250k of the cost of an asset instead of depreciating them at all. This provision is is phased out after a firm expenses over $800k in asset purchases, resulting in no expensing available after $1.05 million claimed.
Our Prognostication
These breaks could be extended in 2010, but they have not been officially acted on. If not extended, bonus depreciation ends and the expensing cap falls to $134k in 2010. Businesses should consider making investments over the next few weeks if they have taxable income to reduce and the purchases fit into normal operations.
The Maine State Government has not followed these federal asset rules. So Maine-based companies should be aware that they will not be able to claim the bonus depreciation or asset expensing against income for Maine taxation purposes.
Special Case: Large SUV Write-off
Buying a new heavy SUV for business-only use may provide the best writeoff of all: expense up to $25k, claim half the remaining cost as bonus depreciation, and take 20% of the remaining cost as regular depreciation. This applies to new SUVs with a loaded weight over 6k pounds used exclusively for business. On an SUV costing $50k, a business could take expense $25k, claim $12.5k as bonus depreciation, and $2.5k as first year depreciation, for a total writeoff of $40k--80% of the purchase price!
Past Year-End Planning Entries
Self Employment & Estimated Taxes