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The purpose of tax deductions is to decrease your taxable income, thus reducing the amount of tax you owe to the federal government.
This year only, up until December 31, 2013, you can purchase up to $500,000 of equipment and write it off (deduct it) from your 2013 tax return.
For example, if you purchase $150,000 of computer equipment and off-the-shelf software, and your company makes $350,000 in 2013, your taxable income will only be $200,000. That’s an immediate saving of $150,000!
Note: The total amount you can deduct under Section 179 must be less than your income (in this example you can’t purchase over $350,000).
So, in this instance why not purchase $349,000 worth of computer equipment and software? You should! You’ll only be taxed on $1.00! Saving $349,000. Imaging that!
Better yet, if your business makes $500,000 this year, buy $499,000 worth of equipment. A $499,000 savings! “CHA‘ CHING!”
It’s important to do this now. The rules for 2014 will change. The $500,000 amount will be drastically reduced to just $25,000!