Section 179 refers to a widely known IRS tax break that lets your business dramatically accelerate depreciation expense on fixed asset purchases. What many entrepreneurs don’t know, however, is that you can use Section 179 to drive down taxable income reported to the IRS yet report higher profits to bankers and investors, increasing your access to the money you might need to grow your business.

The 2007 Section 179 limit is $112K. You can buy up to that amount of fixed assets and deduct it 100% on your 2007 business tax return. The benefit is clear: a corporation with a marginal federal tax rate of 39%, for example, would pay $35K less in taxes this year vs. not using Section 179.

But here’s the rub: expensing that all up front weakens your P&L and Balance Sheet, maybe to the point where bankers and investors might not fund your business, or do so only with more expensive money. So if you run a fast-growing, capital-hungry business with weak financials, how do you save on taxes today without limiting your access to capital tomorrow?

The solution: depreciate the assets on your books more slowly than on your tax return. Take five years, for example, instead of one, to expense them on your books. Your net income will be higher, your balance sheet will be stronger, and your business will look better to the money people. This is both legal and ethical provided it’s disclosed to whoever reads your financial statements.

There’s always some fine print. Bookkeeping costs are higher. The tax benefit is limited by differing state rules, the ineligibility of certain asset types, if your company buys a lot of fixed assets, and you can’t use Section 179 to generate a loss on your tax return. And for book basis depreciation, you need to follow guidelines re: how long to depreciate your assets.

Nevertheless, for certain businesses, this is a great way to have your cake and eat it too.