Depreciation Part 2: Section 179

The IRS section 179 states that businesses can deduct the value of mission critical equipment directly from their income taxes in the year they put the equipment into service. This includes equipment financed through EFAs or Capital leases, as well as those paid for with cash or by bank loan. The 2008 Economic Stimulus Package increased this deduction from 128,000 up to 250,000 for the year 2008.

For instance, a business replaces $10,000 worth of computers and if they choose, the business can take advantage of the 179 deduction and deduct all 10,000 off of the current year's tax return.

The plus: if the business had an unexpectedly good year and has a taxable profit of at least 10,000 (the cost of the equipment), then its fully deductible.

The minus: if the business did tax planning all year long and didn't generate a taxable profit of 10k then they can only deduct an amount equivalent to their taxable profit, so their deduction can be limited. Also, the deduction all happens in that first year even if financed over a 3 or 5 year period.

Section 179 is a great tool for some businesses but as with most things, one size doesn't fit all. For some its a great fit and others are better off with one of the other 2 methods.