Small Business Tax Tips

The Section 179 deduction states "a business can deduct the cost of equipment purchased for business use up to $108,000 in 2006." However, Schwarz warns that once a business has purchased more than $430,000 of equipment in service in 2006, for every dollar the owner has spent over that, he or she will lose the original $108,000 deductible amount on a dollar-by-dollar basis.

Therefore, a company like General Motors (GM Quote) wouldn't be able to do anything with this tax benefit, Schwarz says. "It is a provision for small businesses."

While in 2006 the maximum deductible for equipment purchases was $108,000, for 2007 it will be $112,000.

There's a lot more than the consideration of tax gains that goes into the decision to lease equipment vs. buying it, the tax specialist says. But generally, you want to take advantage of the Section 179 deduction if you can, partly because "in most cases the lease you've entered into is priced assuming that you're going to depreciate the property and not be able to expense it," he says.

"The market is thinking more in terms of the larger company that's going to be subject to the depreciation rules and that's how the lease price gets set," Schwarz explains. "But the smaller company, if it hasn't used all of the [Section] 179 deduction, has the ability to potentially get a better tax deal through ownership."

Once an entrepreneur has gone over the deduction level, Schwarz believes it's better to look at the separate economics of leasing vs. purchasing.

Third, if you're going to be expanding or building your workplace, it's worth seeing whether you get any special incentives for using solar power or having an energy-efficient building, as stated in the Energy Policy Act of 2005, Schwarz says.