November 10th, 2010 | Published in Uncategorized
At this time of year, most businesses are taking a critical eye to financials and bookkeeping. In construction, equipment is often the largest expense for a construction project and effectively managing equipment can determine if the business makes a profit or takes a financial loss. It comes down to decisions (rent vs. own), reliability, and controlling costs.
To that first point, John Leisner recently authored an article for Construction Business Owner magazine that offers guidelines to help contractors decide whether to buy or rent construction equipment, and explains the tax incentives/capital expenditures that construction companies may want to consider.
He writes: “Rental expenses can be billed back to the customer or deducted annually as a business expense. Buying a piece of equipment, however, is a capital expense that must be treated as such at tax time. You can’t deduct the purchased equipment’s entire expense during the year in which it was purchased. The capital costs are then amortized or depreciated over the useful life of the piece of equipment.”
Regarding legislative issues surrounding depreciation, the article advises to look to:
- The Economic Stimulus Act, which includes a provision that allows business owners to deduct 50% of the cost of a new piece of equipment the year it was put into service.
- The Hiring Incentives to Restore Employment Act (HIRE Act of 2010) also allows businesses a Section 179 write-off up to $250,000 of qualified equipment during the 2010 tax year. This benefit also includes equipment that is leased or financed. According to Section179.org, “The obvious advantage to leasing or financing equipment and then taking the Section 179 deduction is that you can deduct the full amount of the equipment, without paying the full amount this year. The amount you save in taxes can actually exceed the payments, making this a bottom-line friendly deduction.”
You can read the full article in Construction Business Owner magazine, here.
You can also read this article published by Modern Contractor Solutions that explains how construction business management software can help equipment managers and business owners ensure that each piece of equipment is achieving the highest productivity possible and at the lowest possible cost by maximizing utilization, minimizing downtime, and recovering costs.