A RTRP Can Still Help Businesses Obtain Bonus Depreciation for 2011 Tax Returns

June 30, 2011 by  Filed under: Taxes 

Business owners are faced with such a wide array of tax matters that most of them rely upon professional tax return preparers. Keeping track of various tax rules makes tax preparer jobs especially important for businesses.

In addition, tax laws frequently change. These are opportunities for all individuals with Registered Tax Return Preparer status to promote their tax practices as knowledgeable specialists. Your value as a tax preparer for business owners is the ability to capture all tax advantages – including those enacted for temporary periods.

One example of a short-term tax benefit for small businesses ends in 2011. This issue affects depreciation of new assets acquired before the end of the year. In fact, a RTRP can help business owners make important purchase decisions by pointing out this advantageous tax situation. That tax impact can be a critical consideration for finalizing a purchase before 2012, when the tax benefit expires.

The tax rules in effect for 2011 provide an expansion of bonus depreciation. This is the amount of cost that a business can deduct as depreciation expense in the first year an asset is placed in service. Bonus depreciation is expanded to 100 percent of new business property in 2011. The tax law is scheduled to revert back to 50 percent bonus depreciation after 2011.

The same tax law also affects Section 179 deductions for 2011. Your income tax course teaches you about the impact of Section 179 for the first year that a business asset is placed in service. All of the costs for new purchases up to a specified limit are deductible under Section 179. The limit for expensing of cost under Section 179 is increased to $500,000 for 2011. This applies to purchases of machinery, equipment, furniture, computers, software, and even some vehicles.

A Section 179 deduction can apply to all or part of the costs for new assets. For 2011, the total cost for all property to which Section 179 is applied cannot exceed $2,000,000. So a business cannot utilize the entire $500,000 Section 179 deduction on a machinery purchase that exceeds $2,000,000. Instead, the Section 179 deduction is reduced one dollar for every dollar that the property cost exceeds $2,000,000.

Section 179 is only available up to the amount of a business’s profit. Therefore, many marginally profitable businesses are best advised to use bonus depreciation. That produces the same advantage in 2011 because the bonus is 100 percent of cost. A business loss created by the deduction is carried over to reduce taxable profit in future years. A business is entitled to depreciation deduction and Section 179 expense whether paying cash for an asset or financing the purchase.

When you become a tax preparer, your qualifications allow you to properly advise business owners about maximizing their tax benefits. An ideal situation for that is the temporary tax benefits on fixed assets purchased in 2011.

IRS Circular 230 Disclosure

Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.

Fast Forward Academy is a leading publisher of education for tax preparer jobs and tax professionals. Access to free questions for the Registered Tax Return Preparer is available on their website.

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