Business owners can find some welcome relief from their annual tax bite when purchasing necessary office equipment. Expensing your deductions is a big incentive to purchase what you need, rather than deducting such equipment as it depreciates each year. You must show earned income to use expensing, and all equipment must be used a minimum of 50 percent of the time solely for business purposes.
Should you decide to not expense certain items, you can still use depreciation deductions, which now allow a higher percentage of the cost of the equipment during the first few years of use. Review deduction tables when making your decision. Other depreciation bonuses may also apply, so it is worthwhile to discuss such items with your accountant or tax preparer. Also, discuss when would be the optimal time of the year to make equipment purchases. You may want to make purchases prior to the end of the year, or wait until the following year, depending on whether you plan on expensing or depreciating. This will also depend on how much equipment you have already purchased during the calendar year.
These relatively new federal government tax incentives were designed to stimulate the economy and promote the growth of new businesses. Local tax incentives are also appearing in many parts of the United States.
First-year business deductions, lower tax rates on machinery, and other such incentives have been enacted by many states and cities looking to stimulate business. Various “enterprise zones” can now be found in cities throughout the country. For example, businesses in the downtown area of Oakland, Calif., which is in the city’s enterprise zone, are eligible for a state tax credit in the amount of sales or use tax paid on qualified equipment or machinery purchases. This includes telecommunications equipment, computers, and other standard office equipment.
You may also find tax incentive programs linked to hiring new employees. In New Mexico, for example, manufacturers may take a credit of 5 percent of the cost of qualified manufacturing equipment if they have hired one new worker for each $500,000 to $1 million in equipment, depending on the claim.
Before purchasing office equipment, make sure to look up the tax incentives offered by your state and/or city and consider how such incentives might be valuable for your business.
For help determining your office equipment needs, be sure to read What Office Equipment Do I Need for My Business?