By locking in a tax break for small-business capital investments, businesses have a better shot at lowering their tax liabilities.
It’s not always easy for small businesses to get ahead in a big business world. But now, thanks to Congress passing a massive tax and spending bill, they can at least permanently reap the rewards of a large tax break for their capital investments.
According to a recent article in The New York Times, the break is intended to make it more affordable for small companies to buy up to $500,000 a year worth of equipment, like computers, machinery and vehicles. Known as the Section 179 deduction, the tax provision allows qualifying capital items to be written off immediately on a business’ taxes, instead of being depreciated over a number of years. This ultimately lowers a business’ taxable profits and lowers their tax liability.
In other words, the deduction, which is limited to small and midsize companies, works like this: If a company has a $90,000 profit and decides to spend $50,000 of it on new computers, the company would normally write off the cost of the equipment gradually, deducting a portion of it each year over the span of the computer’s useful life. But Section 179 allows the business to deduct the entire $50,000 cost at once in the year the equipment is purchased, reducing the company’s taxable profit to $40,000.
Section 179 was once a limited tax break, with an annual cap of $25,000 or less. But in 2003, Congress temporarily raised the limit to $100,000. When the recession set in during 2008, they raised the cap again to $250,000. Then, in 2010, in an effort to stimulate more spending, Congress increased the limit to $500,000, allowing businesses to use the deduction toward more expensive items.
So should small businesses consider taking advantage of this deduction? According to Sean Fitzgerald, No Limit Agency’s Chief Development Strategist, they absolutely should.
“Locking in this tax break is another sign of positive movement forward in the world of small business. When people realized just how much this tax break helped smaller companies, Congress made the right move in making it permanent,” Fitzgerald said. “When we also consider how most franchises fall into that same small business category, this announcement is very good news for franchisors and franchisees as well.”