QUESTION ON FAST DEPRECIATION

Q. I sat in on your class at ISSE Midwest in Chicago. I just opened my own salon back in November and got lucky enough to be able to start with mostly used equipment. In your class you made mention to the fact that in 2011 you can write off all equipment purchases in full. I was wondering if you would mind giving me a little more info about it and if there is a certain way I have to go about it. I was also curious about what your firm charges for your tax preparation services. Right now it's just me in the salon and I'm currently using a CPA that does know a little about the business, but I would love to use someone like Kopsa Otte that deals strictly with salons so that I can ensure I get the best service. Thanks in advance.

A. Good luck on your new business. Owning your own business can be very rewarding but also can be very frustrating at times. In response to your question, normally equipment is written off over 5 to 7 years based on some percentages laid out by the IRS. This is what is normally referred to as “depreciation’ or “MACRS.” MACRS is IRS terminology short for Modified Accelerated Cost Recovery System. As an alternative to deducting the cost over 5 to 7 years you can elect to chose what is called the “expensing election” or technically the Code Section 179 deduction (§179). The §179 of the law says you can expense up to $500,000 of “tangible personal property,” new or used (other than certain automobiles). You can choose the amount that you want to expense. You do not have to expense the entire amount. The equipment can be new or used and still qualify. Warning, your first-year expensing deduction for an activity can’t exceed your taxable net income from the activity. This amount can be expanded by including certain W-2 or other earned income. This gets a little technical and I would need to look at your particular circumstances to determine if you could deduct more than the income from the salon. I also want to mention that if you elect §179 that if you can’t claim all this year you can carry over the unused portion to the next year. Taking fast depreciation depends on your circumstances. It is not an automatic that we advise fast deprecation. Again I would have to look at your situation to give proper advice to you. Amanda of my office will be in touch with you about our tax and other services.