NEVER TOO EARLY FOR TAX PLANNING

By IVA Staff

While the painful memory of filing your taxes is fresh in your mind it is the best time to take steps to reduce next year's tax bill. There are some obscure ideas that you should raise with your tax advisor to see if they are right for you.

Under Section 179 of the Internal Revenue Code, companies with a sufficiently small amount of capital investment can choose to expense rather than depreciate their equipment purchases.   As the result of the American Jobs Creation Act of 2004, you can now expense up to $105,000 in

equipment purchased in 2006 as long as your total capital investment for the year does not exceed $430,000.  In some cases that can mean a tax savings of $33,000 in the year of purchase.   All new vending machines purchased in 2006 would qualify as well as vending software as long as it is placed in service during the calendar year.

A significant change in Section 179 was made in 2005 which, in the hands of a competent tax professional, may save a vending business owner some real money. Prior to 2005, Section 179 was an election that had to be timely made on the tax return in the year in which the fixed assets were purchased.   The taxpayer not only had to make the election, he or she, had to state the amount that was to be expensed.  This was set in concrete.  No changes could better be made. The taxpayer was barred from later making an election if he did not do it at the time of filing. This failure could not even be corrected by filing an amended tax return.   Similarly, if the taxpayer actually did make the election but then subsequently decided that it should be revoked, it was not permissible to do so.  Now all that has changed.  The real benefit of this change is the ability it gives the taxpayer to elect or un-elect section 179 after having the benefit of hindsight.

For example, in cases where the taxpayer has elected Section 179 in a lower bracket tax year, only to discover that subsequent tax years were higher bracket years, it is now possible to erase this mistake and amend the initial election.  In essence, the taxpayer can go back and retroactively un-elect Section 179.  In so doing, substantial savings are attainable through better utilization of depreciation in higher tax rate future years.

Another tax saving idea that can significantly underwrite to acquisition cost of certain new vending machines can be found in Section 44 of the Internal Revenue Code.  This provision creates a disabled access credit to help small businesses cover The Americans with Disabilities Act of 1990 (ADA) – related eligible access expenditures.   A business that for the previous tax year had either revenues of $1,000,000 or less or 30 or fewer full-time workers may take advantage of this credit. The amount of the tax credit is equal to 90% of the eligible access expenditures in a year that exceed $250 but are not more than $10,250. Thus, the maximum allowable credit is $50.00.

*$5,0000 tax credit means if the Business has $6,000 in taxes due it now has $1,000.

The law specifically allows tax credit for "acquiring or modifying equipment or devices for individuals with disabilities or providing other similar services, modifications, materials or equipment." The equipment must be acquired in order to comply with the applicable requirements of ADA and it would be advisable for the location to specifically request that ADA compliant machines be provided.

I am aware of one vending machine manufacturer that has specific line of ADA compliant equipment that provides both wheelchair access to coin, currency and control systems and also provides front and side access to the delivery bin.

Early planning can save a lot of taxes so make sure you call this idea to the attention of your tax advisor for evaluation.

Individuals should seek advice on the above information based on tax-payers particular circumstances from an independent tax advisor.

© Independent Vendors Association

Second Quarter 2006, IVA Quarterly Magazine.