OK, no problem.
First, I'm no accountant or a close to any sort of financial genius, so there may be members who may know much more about tax laws than I do.
I'm just an ordinary guy who owns a business and doesn't want to pay excess taxes if I don't have to.
A secion 179 is a simple tax deduction that uses property such as machinery, equipment, cars, trucks, any tangible equipment and fixtures that you use in business. With a 179, you can deduct the whole and entire expense in one single year, or part of it over 5 years (your choice depending on your tax planning).
For example, hypothetically, if you had a good year in business and made, say $100,000.00 in total taxible profit, and your tax bracket is 25%, you would pay 25K in taxes.
So if you buy something for lets say $20,000, you can deduct the entire 20K off of your yearly taxible profit to where your total taxible profit is now 80K. That means you would only pay 20K in taxes giving you a $5,000.00 in savings from the section 179. So if something has already been depreciated totally (179), sometimes it's a good idea to buy a new one to keep up with real market depreciation of the equipment. Hypothetically, the tractor I am looking to trade is worth in Roys opinion depreciated 35% of what I paid for it So using 28K, my tractor should be worth $18,200 on a new one. Lets say I pay 12K in trade and write it all off this year, and using a hypothetical 25% bracket, I gain $3,000.00 in tax deductions on 12K. It costs me 9K to move up 7 years in tractor age. So then the question is "Is it worth it". Maybe yes, and maybe no depending who you ask.
The thing where people get carried away is that if your business is solid, you will (hopefully) have the same tax problem next year. If you deduct the entire amount in one year, there is nothing left to deduct from next years tax liability, and you may still have a few years of payments on the investment. So it's always best to either need the investment or at least keep up with actual depreciation of the merchandise you are buying.
So, buying Hummers to save on taxes is a pretty stupid idea, unless you are making money to burn and can afford it..
The other thing is that "business" loan interest is also tax deductable, so if you borrow the money, at least you get to write that off each and every year against your total yearly profit. That's why businesses always borrow.
Also remember for those who do not own a business and can't get the interest write off, it's a better deal to borrow the money for any purchase like a car or anything you can't write off from your home's equity. If you have home equity, use that route to borrow because it then becomes tax deductable.
The way our politicians burn through our hard earned money with little thought towards the people like us who actually pay their bills, it becomes even more important to hold on to every cent we make, or get the rightful credits for our spending..
