Small Business Tax FAQ
If I buy a new computer this year, do I have to deduct the cost over a five-year period?
5. If I buy a new computer this year, do I have to deduct the cost over a five-year period?
Probably not. Under Section 179, you can deduct in one year the cost of tangible personal property that you buy for your business (such as computers, office furniture, and equipment). This is a major exception to the general rule that the cost of capital equipment -- equipment that has a useful life of more than one year, such as a computer system -- must be deducted over a number of years.
There is a $500,000 annual limit to the total amount of business property expenses that you can deduct each year under Section 179. Most small businesses can fit all of their capital expenditures each year into the annual deduction amount.
Section 179 doesn't apply to land, buildings, inventory, intangible assets, and air conditioning and heating units. It does apply to vehicles, but special rules limit the portion of the cost of a car that you can depreciate each year.
For more information, see Deduct It! Lower Your Small Business Taxes, by Stephen Fishman (Nolo).