It’s the end of the year, but small business owners still have considerable flexibility in calculating write-offs for business assets purchased during the year, such as computers, production equipment, office furniture and some types of vehicles.
Section 179 Deduction
According to Chet Burgess, an enrolled agent who also owns Brookwood Tax Service in Atlanta, GA., a small business that acquired less than $420,000 of business assets during the year is allowed to write off up to $105,000 of purchases immediately for 2005, rather than using the regular, multi-year depreciation schedules for all business property.
This write-off option is called the Section 179 expensing deduction, and the business owner does not have to decide whether and how much Section 179 write-off to take until preparing his tax return.
There is also the so-called “SUV deduction,” which allows a business to deduct up to $25,000 of the cost of a qualifying larger vehicle in the year of purchase. The SUV, van or truck must have a gross weight rating in excess of 6,000 pounds (design weight fully loaded) to qualify for this write-off. The SUV deduction can be claimed on a vehicle purchased and put into business use as late as December 31st.
One caution – some IRS officials have indicated the IRS may challenge this write-off unless the vehicle was build on a truck chassis (rather than a car chassis), so check with a knowledgeable tax professional before signed the check at the dealership.
Retirement Plan Deductions
A small business owner, whether a sole proprietor, sole shareholder of a corporation or single-member of an LLC, can set up a retirement plan, boost tax deductions and reduce business taxable income.
A solo 401(k) plan can be established as late as December 31st, but does not have to be fully funded until the due date of the business tax return in 2006 (plus extensions). For a sole proprietor, the filing deadline can be extended to as late as October 15th or 2006. A SEP can be established and funded as late as the extended due date of the business return.
A qualifying small business that establishes a new retirement plan in 2005 is eligible to claim an additional tax credit of up to $500 per year for the first three years of the plan, based on the costs of setting up and operating the new retirement plan during the first three years.
Chet Burgess, EA
Brookwood Tax Service, LLC
4 Montclair Dr., NE
Atlanta, GA 30309-1527
Dec. 30, 2005.