Important Tips and Information for 2006 Tax

Important Tips and Information for 2006 Tax

Business Equipment Purchases

No matter what form of business you choose to operate under, chances are you will expend money on equipment purchases. Take the time to plan your acquisitions to ensure the best tax results and plan it before the year end to take advantage of depreciation.

Buy or Lease: All kinds of leasing deals are available on all kinds of equipment. With a true lease, you can deduct your business-related lease payments in full. If you have financed the asset and will own it in future than, you have to treat it as purchase. In that case, your write-offs take the form of depreciation deductions and interest expense.

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Depreciation and Section 179 Expense Changes for Tax Year 2006

Every year, you can “expense” (write off all at once instead of depreciating), within limits, the cost of business equipment or other eligible personal property you acquire and use in your business. The limit is $105,000 in 2005 ($108K in 2006). This is often referred to as the “Section 179” tax. This limit is reduced by the amount by which the cost of section 179 property placed in service during the tax year exceeds $430,000.

Previously, SUV’s weighing more than 6,000 pounds were not subject to the limitations imposed on so-called “luxury” automobiles because their weight put them outside the limitation-triggering definition of “passenger” automobiles. However, the new law creates a separate category for such SUV’s (including those rated at a gross vehicle weight of not more than 14,000 pounds) and imposes a $25K limit on the deduction. This limit will be effective for property placed in service after October 22, 2004.

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Start-up Costs

You can elect to deduct up to $5,000 of business start-up costs and $5,000 of organizational costs paid or incurred after October 22, 2004. The $5,000 deduction is reduced by the amount your total start-up or organizational costs exceed $50,000. Any remaining cost must be amortized.

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Social Security and Medicare Tax Changes for Tax