George S. May Business Blog

Tax break tips for small business owners

For the small business owner who has a bit of capital now is the time to go shopping as you can still take advantage of this year’s favorable tax depreciation rules. Here are a few things to purchase that will really help you slash taxes for 2008.

Buy a big SUV
Yes, you may get a few snide looks from the tree-huggers of America, but doing so will help to keep you smiling all the way to the bank. Whether it is new or pre-owned, buying an SUV and using it more than 50% for business for the rest of the year (based on mileage) qualifies you for a first-year Section 179 depreciation write-off of up to $25,000. You can then write off the rest of the cost under the general tax depreciation rules.

Now, when I say big, I mean that to collect the $25,000 deduction, the SUV must have a manufacturer’s gross vehicle weight rating (GVWR) of more than 6,000 pounds.

Buy Other Equipment, Software and Vehicles (non-SUV)
A larger $250,000 first-year Section 179 deduction allowance is available for new and used business equipment (computer systems, office furniture, machinery) and software put to use in tax years beginning in

2008. The $250,000 deduction privilege is also allowed for heavy pickups and vans (above 6,000 pounds) that are not classified as SUVs under the tax law. Here are the specifications needed to apply:

Pickups with a cargo area that is at least six feet in interior length.

Closed load-carrying vehicles with no seating behind the driver’s seat and no body section protruding more than 30 inches ahead of the leading edge of the windshield (delivery vans).

Vehicles designed to seat more than nine passengers behind the driver’s seat, (shuttle vans, mini buses, etc).

Take Advantage of 50% First-Year Bonus Depreciation
Your business can also claim 50% first-year bonus depreciation for qualifying new equipment and software placed in service by Dec. 31, 2008, as well as real estate land improvements (sidewalks, drainage systems etc)
For a new asset that’s also eligible for the Section 179 depreciation write-off, the 50% bonus depreciation deduction is based on the cost remaining after the Section 179 deduction. Any cost remaining after subtracting both the Section 179 and 50% bonus depreciation deductions is depreciated under the normal tax rules. Keep in mind however the Dec. 31, 2008, deadline for 50% first-year bonus depreciation applies whether your business’ tax year is based on the calendar year or not.

Waiting Until Next Year Could Be Problematic
You should be aware that all of the first-year depreciation breaks explained here might be eliminated or seriously cut back next year.

The $25,000 Section 179 deduction for heavy SUVs could be repealed because environmentally-conscious Democrats in Congress hate gas guzzlers. However, given the dire condition of the nation’s auto industry, this break might be left on the books to encourage sales.

The $250,000 Section 179 deduction is scheduled to drop back to only $133,000 for tax years beginning in 2009. However, the $250,000 allowance might be extended as part of an upcoming economic stimulus package.

Finally, the 50% first-year bonus depreciation break is scheduled to expire at the end this year. However, it too could be extended as a stimulus measure.

In the end, before you make any purchases/decisions, I urge you to consult with a tax professional. There are many stipulations to these tax deductions and meeting all of them can be quite tricky on your own.

(a portion of the above tips have been adapted from an article on aol news)

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