Here's a tax break businesses shouldn't overlook during years when their capital-equipment expenditures add up to less than $200,000: Companies can write off up to $10,000 of capital-equipment expenditures during the year of the equipment's purchase -- regardless of the applicable IRS depreciation schedule, which normally would force them to write off all expenditures at a slower pace. Capital equipment is generally defined as "anything that is solid, fixed, and planned for use over a number of years rather than set to be used up right away," a definition that generally refers to machinery and equipment, explains Jack Seder, a tax manager in the Washington, D.C., office of Coopers & Lybrand.
The $10,000 write-off provides an initial boost to a company's cash flow. Afterward, companies must depreciate the remainder of their capital-equipment costs according to the IRS's standard depreciation rates, which range from 3 years for some types of computer equipment to 31½ years for commercial real estate.
Seder advises companies to time expenditures to maximize the accelerated tax break. "If it's November, and you know you'll need to spend more than $200,000 on capital equipment in the near future, divide your purchases between December and January. That way you'll get the $10,000 write-off twice."
One caveat: because of an IRS crackdown on suspected abuses, write-offs of costs for most cars, vans, and light trucks are limited to no more than $2,450 per vehicle in the first year -- regardless of whether or not you qualify for the $10,000 write-off. -- Jill Andresky Fraser* * *