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JULY 5, 2004
Taxes: Brilliant Deduction Grab these depreciation breaks fast Entrepreneurs need to hustle if they want to take advantage of two tax-law quirks that expire soon. Ed Weinstock did, and he has an extra $120,000 in depreciation-related deductions to show for it. Both changes in the tax law were enacted in hopes of spurring capital spending after the September 11 attacks. The result: Small businesses have a lot more flexibility in choosing how much depreciation to take and when to take it, says Chuck Burgess, a CPA with Brookwood Tax Service in Atlanta. "You can literally pick the amount you want to deduct and use a combination of write-offs to reach it," he says. Weinstock, the owner of New York-based Fuel Digital, a photo retouching company with $11 million in sales, purchased $200,000 of computer equipment in 2003. Using a so-called Section 179 deduction, he was able to write off half of that as depreciation. Section 179 can be applied to almost any capital expense -- new or used equipment, a building, or office furniture. The maximum write-off under this rule is now $102,000, but it sinks to a paltry $25,000 for 2006. Weinstock next took advantage of bonus depreciation, which expires at the end of this year. Bonus depreciation applies to equipment with a life expectancy of 20 years or less. It allows 50% first-year depreciation -- in Weinstock's case, $50,000. Finally, Weinstock followed standard depreciation tables, writing off 20% more, or $10,000. His grand total: $160,000 in deductions, compared with just $40,000 using standard depreciation tables. Be aware that gorging on deductions now may backfire later. If your income is low this year, but you anticipate being in a higher tax bracket next year, "you might reconsider taking the deductions" immediately, says Ross Rizzo, director of tax at accounting firm Salibello & Broder LLP in New York. These tactics will also make your company look less profitable -- something to bear in mind if you plan to apply for a loan. William Pollack, president of Optimation Technology, a $7 million Rochester (N.Y.) engineering company, is sticking to the standard tables. "I wanted to make my books look a little brighter for the banks," he says. That means they look a little brighter to Uncle Sam, too -- at least this year.
 By Karen Cheney
BW MALL
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