Reduce taxes when you make business purchases

The new tax law offers two ways to take faster tax write-offs when you buy equipment for your business.

Expensing increases to $100,000.  First, you can now take an immediate tax write-off for up to $100,000 of the cost of business equipment purchased and placed in service this year.  Under the old law, the limit for 2003 was $25,000.  The advantage of expensing is that you write off the entire cost immediately, instead of deducting it as depreciation expense over several years.  The new $100,000 limit will be indexed for inflation in 2004 and 2005.

You're most likely to benefit from this rule if your business is small or mid-sized.  That's because the expensing amount begins to phase out when your annual equipment purchases reach $400,000.  Most tangible personal property used in your business qualifies for the break, whether you buy it new or used.  Land, buildings, and certain other kinds of property aren't eligible.

Bonus depreciation increases to 50%.  Under the new tax law, you can also claim higher bonus depreciation on new equipment purchases.  Previously you could deduct bonus first-year depreciation of 30% of the equipment cost.  For purchases made on or after May 6, 2003, you can claim 50% bonus depreciation.  The old 30% bonus applies to purchases made before that date.  Eligible equipment includes most new business equipment and certain leasehold improvements.

You'll need to do some careful planning to achieve the maximum benefit from these two tax provisions.