In the not so distant past, every aggregate operation, whether a small strip mine or a massive quarry, often spent large amounts of money hiring a programmer to set up and customize an automated bookkeeping or accounting system for their business. Fortunately, the days of cumbersome, manual systems are long past, and today there are a number of very affordable and full-featured accounting software packages from which to choose.

These popular accounting packages not only allow crushed stone, sand and gravel producers and distributors to track and manage every aspect of their operation's finances, they also save the time and effort usually expended producing tax returns, financial statements or both. Expenses also can be reduced both for the accounting software and for the computers needed to operate it — and many other business operations — thanks to our tax laws.

Should a company expense and immediately write off the cost of a computer, or depreciate it to benefit from smaller tax deductions over the next few years when the operation is, hopefully, in a higher tax bracket thanks to more profits? That relatively basic question is only the tip of the iceberg when it comes to our federal tax laws and computer write-offs.

Whether for exclusive use in the office; to perform mobile services for the operation's officers, executives or department heads; or as an integral tool in a home office, computers are considered listed property under our tax rules and are subject to special rules. These rules are both restrictive for and beneficial to an aggregate company.

Before delving into the listed property restrictions and the software that so many producers rely on, consider the potential tax write-offs for that routine computer purchase.

Under our federal tax rules, computers and peripheral equipment are classified as qualified technological equipment and, as such, are usually written off or depreciated over a five-year period. The American Recovery and Reinvestment Act increased the write-off possibilities. The increased Section 179 fist-year expensing allowance has for example, been extended one additional year.

Section 179 property is depreciable personal property when purchased for use in the active conduct of a trade or business. An expense deduction allows producers that choose to treat the cost of qualifying property, such as crushers, as an expense rather than as a capital expenditure. Off-the-shelf computer software placed in service in tax years beginning before 2010 also is treated as Section 179 property.

Under current tax law, there is a $250,000 limit on the maximum amount of Section 179 property a producer may expense and immediately write off during the tax year. That annual dollar limitation is reduced dollar for dollar by the cost of Section 179 property placed in service during the year in excess of an investment limitation of $800,000. For the 2010 tax year, the write-off amount is $134,000, reduced if more than $530,000 in new equipment is placed in service during the year.

ARRA contains a new and temporary 50% bonus depreciation deduction for qualifying property acquired after Dec. 31, 2007, and placed in service before Jan. 1, 2010. Unlike the Section 179 expensing election, there is no limit on the total amount of bonus depreciation that may be claimed in any given tax year.

The bonus depreciation allowance is available only for new property (property for which the original use begins with that taxpayer), but does include off-the-shelf computer software usually depreciable over three years. Unfortunately, listed property used 50% or less for business, does not qualify for bonus depreciation.

There are many questions aggregate executives must answer when plotting a tax-deduction strategy. Would the operation be better off with a small, current tax deduction to offset low or non-existent income in a startup or slow year? Would additional write-offs in later years benefit the company as its financial picture improves? Would an immediate tax deduction for those expenses this year help keep the tax bill manageable? Or, perhaps, this year's extraordinarily great income would benefit from a super-sized tax write-off or tax credit.

Fortunately, both the Section 179 expensing allowance and bonus depreciation is optional. Any producer wishing to take advantage of a tax deduction in a later, more profitable year can safely ignore these and many other tax write-offs. Of course, the basic depreciation deduction, whether claimed on the annual tax return or not, cannot be postponed until a later year. The depreciation deduction must be considered when the asset is sold or otherwise disposed of.

DEPRECIATION DEDUCTIONS FOR listed property are subject to special rules. Computers and peripheral equipment, mobile telephones and similar telecommunications equipment are lumped into the listed property category along with cars, boats, airplanes and amusement property, because all lend themselves to personal use. As listed property, unless used more than 50% for business, no deduction can be claimed, and depreciation deductions must be determined under an alternative depreciation system (ADS).

If the listed property satisfies the “more than 50% business use” requirement in the year in which it is placed in service, but fails to meet that test in a later tax year, depreciation deductions (including bonus depreciation) previously taken may have to be paid back. Depreciation for years preceding the year in which the business use fell to 50% or less is recaptured to the extent that depreciation (including any bonus depreciation) for such years exceeds the depreciation that would have been allowed under ADS. Depreciation thereafter must be computed using ADS.

Generally, the purchase of computer software can be best compared to the purchase of any business asset: If the business asset or the computer software has an expected useful life of longer than one year, its cost should be written off or deducted over a 36-month period. Although treated as a capital asset, most off-the-shelf software can, at least for the time being, be expensed and immediately deducted as Section 179 property.

Depreciable off-the-shelf computer software placed in service during the 2009 tax year is expensed and immediately written off under Section 179 of the Internal Revenue Code, our basic tax law. Again, this is software that is readily available for purchase by the general public, is subject to a nonexclusive license, has not been substantially modified and is usually depreciable over three years.

LIKE COMPUTERS, SOFTWARE placed in service between Jan. 1, 2003 and Dec. 31, 2010, is eligible for a Section 179 deduction. This means that 100% of the cost of software can be deducted in the year purchased.

When software comes with a computer, and its cost is not separately stated, it is treated as part of the hardware and is depreciated over five years. Under Section 179, however, the entire computer system (including bundled software) can be written off in the first year.

The IRS has yet to issue formal guidance on the treatment of Web site development costs. However, informal internal guidance suggests that one appropriate approach is to treat those costs like an item of software and depreciate them over three years.

It is clear that taxpayers who pay large amounts to develop sophisticated sites have been allocating their costs to items such as software development (currently deductible like research and development costs), using the Section 179 first-year expensing election and even as currently deductible advertising expenses.

An aggregates producer operating as a partnership, a limited liability company, or as an S corporation (a corporation that has chosen to be treated similarly to a partnership), can make a charitable contribution and pass the deduction through to the partner or shareholder's tax return. A regular C corporation can, of course, deduct the charitable contributions.

Giving old computers to a school or nonprofit organization can yield goodwill plus a tax benefit. Naturally, if the equipment has been fully depreciated or written off, no tax deduction is possible.

On a similar note, a deductible loss may be claimed for the abandonment of any depreciable asset. The amount of that loss is the computer's adjusted basis. Of course, the tax law says that the owner must “manifest an irrevocable intent to abandon (discard) the asset so that it will neither be used again by the taxpayer nor retrieved for sale, exchange or other disposition.”

Every producer may deduct what the tax laws call a “reasonable allowance” for the exhaustion, wear and tear of all property used in any trade or business — or for the production of income. As with many areas of our tax law, there's far more to computers, peripherals and software deductions than a simple depreciation write-off. Fortunately, the benefits far outweigh the restrictions for those willing to adhere to the rules. As always, seek professional assistance whenever necessary.

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Mark E. Battersby is a freelance writer specializing in tax and finance. For more than 25 years, his work has appeared in leading business publications. He is the author of four books and a frequent contributor to Rock Products.