Tax Deductions for 2011 on equipment purchases

The government has changed some of the business tax rules for 2011.  Below are those new rules.  Businesses need to contact their CPA for their own tax planning and qualified equipment.   

First year depreciation (Section 179 deductions) has been increased from $250,000 up to $500,000 for 2011.   This means you can deduct up to $500,000, this year, for any equipment you purchase in 2011.  The phase out rule is when a business purchases more than 2 million in new and used equipment they start to decrease the first $500,000 deduction.  An example is a company purchases 2.2 million in new and used equipment in 2011 they would decrease the 179 deduction by $200,000.  

If the company is going to show a loss in 2010 they cannot take the additional 179 deduction to create or increase an overall loss.  

For cash basis accounting businesses, this means they can take in more income and reduce prepaid expenses for 2011 and still reduce their tax liability.