Purchases of plant and machinery

Make sure that you have claimed all the tax relief that you are entitled to for purchases of plant and machinery. A tax deduction for the cost of buying office furniture, computer equipment and other tools is given by capital allowances. In the year of purchase, the relief is a ‘first year allowance’, which for acquisitions in the period 1 April 2006 to 31 March 2007 is 50% of the cost. For the previous year it was 40%. It is important to check these rates if you are doing your own tax as they vary frequently. After the first year, you get a ‘writing down allowance’ of 25% a year on the balance of the cost.

Under IRS Section 179, equipment purchases of up to $112,000 can be expensed or deducted from taxable income in 2007 if it is the first year eligible property is placed in service in a trade or business. Finance leases i.e., $1.00 buyout, qualify for this deduction in their year of inception. Normally, these types of assets must be depreciated over a number of years, generally three or five or seven years, so that the tax deduction takes a while to be fully realized. But under the provisions of Section 179, 100% of the equipment cost can be deducted in the year that the equipment is placed in service, even if the company finances the entire purchase of the equipment. Even if a company only makes one or two lease payments; it can deduct the full cost of the equipment up to $112,000 for 2007,