John Von Essen on 15 Dec 2008 19:32:41 -0800

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Re: [PLUG] To buy or to lease

As someone who does alot of tax work I feel obligated to shed some more 

According to the IRS, computers and peripherals have to be depreciated 
over 5 years. However, a change in the tax law (Section 179) allows you, 
if you so desire, to write off the entire amount in year 1, or write off 
any portion of the amount year 1, then depreciate the rest over 5 years. 
The portion is arbitrary and can be any amount. Section 179 has to be 
re-voted on every year, for 2008 it is still on the books.

As for the depreciation though, it is not simply 100% divided by 5 (aka 
20% written off per year). You have to follow specific depreciation 
methods as set forth by the IRS. The most common is called General 
Depreciation, 200% declining balance, half-year convention. Under this 
method, you write off 20% year 1, 32% year 2, 19.2% year 3, 11.52% year 4, 
11.52% year 5, and 5.76% year 6. Its sounds weird, but under a 5 year 
recovery period, you write it off over 6 tax years.

And it doesn't matter how you pay for the item. You can buy a server 
outright, or you can lease it and pay it off over X number of years, it 
still goes down as a purchased asset on the calander day you acquired the 
physical asset, the IRS doesn't care how you pay for it, and for what 
duration you pay it off. When leasing or financing, the item still has a 
"purchase" price, which should be declared somewhere on the paperwork

Its actually a good system because it shifts the bulk of the write off 
into years 1 through 3 - the years that the asset is most used and valued.


On Mon, 15 Dec 2008, Bill Hance wrote:

> it's depreciated over 5 years
> 20% write-off, x5
>> Also, can't you write of deprecation for equipment owned, since its an
>> asset? But how would you value an asset to market value? Its not like
>> a bond or equity, its equipment. Its very subjective.
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