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Deduct up to $128,000 in hardware and software spending for 2008
The government has beefed up tax benefits to small businesses for the fifth time in six years. President Bush signed a tax-relief package last May to help small businesses offset the costs of a higher federal minimum wage.
The tax incentives include bumping up the amount small businesses can deduct for technology purchases. The deduction rises to $128,000 for 2008 and lets small businesses expense new equipment purchases immediately, rather than having the costs deducted over several years.
 The 411 on Section 179
It's not the first time the government has tried to ease the tax burden of small businesses by bolstering Section 179 of the tax code, which historically has let companies immediately deduct $25,000 a year in new equipment expenses, including technology purchases.
Lawmakers in 2003 quadrupled the deduction to $100,000 a year and let companies deduct packaged software for the first time. Congress renewed the higher deduction and the software provision in 2004 and 2006, and did so again last May. Under that revision, the higher deduction, which was scheduled to expire in 2009, has been extended an extra year, to 2010.
Section 179 lets small businesses immediately take a one-time deduction for equipment purchases in one tax year versus having the costs deducted over the useful life of the equipment, which under a normal depreciation schedule is typically five or seven years. Technology that can be deducted includes servers, computers, printers, networking equipment and off-the-shelf software.
Tax-deduction tips
Businesses that spend more than the annual limit cannot take the full Section 179 deduction. Every dollar spent above the limit must be subtracted from the deductions.
During the last few months of the year, determine if you need new equipment so you can take advantage of the tax break. Don't make a purchase for the sake of making a purchase, however — your technology purchases should be driven by business needs.
If you review your needs and risk going over the Section 179 deduction and spending limits, you can split your purchases over two tax years. For example, buy half the equipment in November and December, and then the remaining half in January or February.
Despite the immediate benefits, not every company should take advantage of the deduction in every case. Consult with an accountant to discuss different tax scenarios and to determine the best tax strategy for your business.
The larger Section 179 deduction has proved extremely popular with small businesses during the past five years for obvious reasons. Just make sure that when you use it, you're using it to your best advantage.
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