If you run a business or a sideline business, you can use the “Section 179″ (named after a portion of the tax code) expensing election. In 2001, you can expense up to $24,000 worth of business property. Thus, if you spend $40,000 on business equipment this year, you can immediately deduct $24,000 while the other $16,000 must be written off over several years.
The $24,000 limit applies to taxpayers who purchase no more than $200,000 worth of equipment per year. Above $200,000, you lose the benefit of expensing, dollar-for-dollar. Thus, if you buy $210,000 worth of business equipment in 2001, the expensing election is reduced by $10,000, to $14,000, and the other $196,000 must be depreciated. If your equipment purchases exceed $224,000 this year, no expensing will be permitted.
If your business hasn’t bought much equipment this year, buy enough to bring the total up to $24,000 before year-end, even if the equipment won’t be needed right away. However, if your business is already over the $200,000 mark for the year, defer some purchases until 2002, when expensing may be permitted. Even though you buy equipment in December 2001, you won’t qualify for a 2001 write-off if it’s not installed until January 2002. Conversely, if equipment is placed in service in December, you can take a 2001 deduction, even if you don’t pay until next year.