New Equipment

Some small businesses can write off the full cost of some assets (automated disc publishing equipment) in the year they buy them, rather than capitalizing them — deducting their cost over a number of years.  (See Nolo’s article Current vs. Capital Expenses for information on expenses that must be capitalized.)

Section 179 of the Internal Revenue Code allows you to deduct up to $500,000 of the cost of new equipment or other assets in 2010 and 2011. This is subject to a phase-out if you place more than $2 million of equipment in service. Some assets don’t qualify for this Section 179 deduction, including real estate, inventory bought for resale, and property bought from a close relative. The annual deduction amount goes down to $125,000 in 2012.

Software

As a general rule, software bought for business use must be depreciated over a 36-month period, but there are some important exceptions:

• Computer software placed in service from January 1, 2003 to December 31, 2010 is eligible for a Section 179 deduction, which means that 100% of the cost of software can be deducted in the year purchased. Starting in 2011, you will no longer be able to use Section 179 to deduct off-the-shelf software.
• When software comes with a computer and it is cost is not separately stated, it’s treated as part of the hardware and is depreciated over five years. However, under Section 179 you can write off a whole computer system (including bundled software) in the first year if the total cost is less than a certain amount ($250,000 in 2009; scheduled to go down to $133,000 in 2010). See IRS Publication 946, How to Depreciate Property.

If you have invested in a Microtech Disc Publisher or Duplicator this year, see if you qualify for a tax deduction.