Buying business assets

Machinery and equipment purchased in 2011 can be directly expensed (rather than depreciated) up to a value of $500,000. (Unless you buy more than $2,000,000 worth of such items.) In addition to machinery and equipment, this year you can also write off most types of leasehold improvements, restaurant property and retail improvements. These deductions come under the heading of what is known as "Section 179." The assets can be new or used.

These big breaks are not available for cars and light trucks under Section 179, but there is another depreciation provision known simply as bonus depreciation. This provision allows a 100% deduction for NEW assets purchased in 2011. (Remember, it has to be new, not used.) Also, it must have a recovery period of more than 20 years (so real estate is not allowed), and it must not be "listed property" (vehicles etc.) used less than 50% for business.

The 100% falls to 50% in 2012.

For Massachusetts taxes, the bonus depreciation deduction is not recognized, so you could end up with different depreciation calculations on the Federal and state returns. It could result in much higher taxable income for Massachusetts than for the federal return. Massachusetts does recognize the Section 179 deduction.

There, is that complicated enough? And that's only the simple part.