Shrinking Depreciation Deductions by Guest Blogger Todd Roberts

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Todd Roberts is a regular reader of SenneySays. Todd forwarded the following article he wrote on “Shrinking Depreciation Deductions.” This article is well-written and timely. There is still time to take advantage of the generous bonus depreciation and Section 179 depreciation deductions.  Check out Todd’s article below.

SHRINKING DEPRECIATION DEDUCTIONS (abridged and reprinted with permission)

 End of year tax planning for businesses is especially difficult for 2012 because many significant provisions are scheduled to expire and it is not clear what Congress intends to do.  The lack of certainty makes year-end planning more challenging.  However, business owners’ can still act to lower their taxes by taking advantage of the generous bonus depreciation and Section 179 expense deductions available thru the end of 2012.

Bonuses Depreciation Deduction Shrinks.  For most of the past decade, Congress encouraged business owners to invest in expansion and revitalization of their businesses by purchasing new property and equipment.  Most recently, the bonus depreciation provisions were expanded in 2010.  The law allowed first-year depreciation of qualified property equal to 100 percent in years 2008 – 2011.  A deduction of 50 percent of the asset’s cost is allowed for qualified property placed in service after 2011 and before January 1, 2013.  But property placed in service in 2013 is not eligible for bonus depreciation at all.   This will significantly reduce the first-year depreciation deduction on most business assets, thereby extending the time of cost recovery.  Companies that are contemplating investing in depreciable property should consider putting this new business equipment in service before December 31, 2012.

Vehicles.  For new passenger autos and light trucks used 100 percent for business and subject to the luxury auto depreciation limitations, the bonus depreciation break increases the maximum first-year depreciation deduction by $8,000 for vehicles placed in service in 2012.  Under current law, there is no bonus depreciation or extra $8,000 auto or light truck depreciation limitation after December 31, 2012.  Taxpayers can deduct up to $25,000 of the cost of new SUV, if it is rated at more than 6,000 pounds gross vehicle weight, as a business expense in the placed-in-service year.  In addition, the remaining cost of the new SUV place-in-service in 2012 is eligible for 50 percent first-year depreciation.

Expensing (Section 179).  A similar cost recovery provision in place for many years allows businesses to deduct some or all of the costs of acquiring depreciable assets, commonly called Section 179.  Unlike bonus depreciation, which is generally available to all businesses regardless of size and without limitation on the amount of business property acquired during the year, Section 179 is subject to several limitations that generally result in Section 179 expensing only for smaller and less capital-intensive businesses.  The maximum amount a business can expense for a tax year beginning in 2012 is $139,000 of the cost of qualifying property placed in service for the tax year.  The $139,000 amount is reduced by the amount by which the cost of qualifying property placed in service during 2012 exceeds $560,000 (the investment ceiling).  For tax years beginning in 2013, unless Congress makes a change, the expensing limit will be $25,000 and the investment ceiling will be $200,000.  The time of purchase does not affect the amount of the expensing deduction.  A business can purchase property late in the year and still get a full expensing deduction.  This means that if a business is thinking of purchasing in early 2013, they might want to accelerate the purchase to 2012.

Conclusion.  The bonus depreciation provisions and increased annual Section 179 deduction limits have reduced the after-tax costs of acquiring business property by accelerating the tax deductibility of some or all the costs of acquiring the assets over the past several years.  As a result, the provisions have proven very popular with businesses.  With favorable tax treatment still in place for 2012, businesses should contact their tax advisor to discuss the after-tax costs of acquiring depreciable business assets in 2012 versus 2013.  Call me at Jsenney@pselaw.com or 937-223-1130 if you have any ideas for an article or would like to submit one yourself.



AND ONE MORE THING.   Ohio has recently amended its corporate dissolution statute. If you are owed money by a corporation that is dissolving, you can be adversely impacted if you do not act in a timely manner.  The dissolving corporation is now required to give notice of dissolution to each known creditor and to each person that has a claim against the dissolving corporation. The notice will advise that you must file a claim for what you are owed and a deadline for filing the claim must be fixed. The deadline must be at least 60 days following the date the notice is given. The claim must be in writing and must “identify the claimant and contain sufficient information to reasonably inform the corporation of the substance of the claim.”  IF YOU DO NOT FILE A CLAIM BY THE DEADLINE THEN ANY CLAIM YOU HAVE AGAINST THE DISSOLVING CORPORATION IS BARRED.  This is not something you can set aside until you have time to deal with it. Failure to file a timely claim is fatal.  if you have a claim against a corporation and receive a Notice of Dissolution, you need legal counsel to advice on the technicalities of the new statute or you may have your claim barred.  Please contact one of our Business Attorneys at 937-223-1130 for guidance on these matters.