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December 14, 2006

December is the year-end for most closely-held businesses. If you are looking for a way to reduce your 2006 tax bill from the business, you might be able to do so by moving up some asset purchases.

The tax law's "Section 179" allows you to expense equipment and software purchases of up to $108,000 in 2006 that would otherwise have to be capitalized and depreciated or amortized over several years. If you are going to buy some new equipment soon anyway - say, new computers, printers, or machinery - you may be able to reduce your 2006 taxes by getting them in place before year end.

But be careful: if you have over $430,000 of fixed asset additions in a year, the Section 179 deduction begins to phase out. The $108,000 limit applies with S corporations and partnerships at the company and the owner levels. And you have to have either wage or other active business income to use the Sec. 179 deduction. Sometimes retirees find that they don't have enough "active" income to take the deduction.

Link: Publication 946 on Section 179 deduction and depreciation.

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