Tax breaks for businesses come and go, with many of those that are set to expire gain a last-minute extension in hopes of breathing new life into the small businesses that grow the economy. However, this year is shaping up a little different for Section 179. It received a bit of a reprieve in early 2013 when it was extended through the end of 2013 as part of the fiscal cliff deal, however, there is no such second chance looming on the horizon this time around.
What Are the Section 179 Changes for Small Businesses?
The current provision allows a tax break of up to $500,000 with an investment ceiling totaling 2.5 million dollars. The new provision brings a massive reduction of $25,000 maximum deduction and a ceiling of $200,000 for investments beginning January 1, 2014.
What Property Qualifies for this Deduction?
The IRS is very specific that only eligible property acquired by purchase and for business use qualifies for the deduction. But, what types of property are eligible? The IRS Deduction and Expense Publication details that it must be tangible personal property, such as machinery and equipment, storage tanks, pumps, livestock, facilities, office equipment, grain bins, and agriculture or horticulture structures.
It’s important to understand that the assets must also be placed in service before the end of 2013 and businesses must have taxable income in order to take advantage of the benefit.
Businesses that do not have taxable income for 2013 can still take advantage of the bonus depreciation provision that allows them to write off half the purchase costs of qualifying new property purchases.
What Do These Changes Mean for Your Small Business?
The bigger question to ask, though, is what does this change mean for your small business? As a small business owner, you have many decisions to make over the course of the next few weeks. The year 2013 is winding down quickly and 2014 will soon be upon us. You may have a major capital acquisition you’ve been considering. If you’ve been wavering between making the purchase now and waiting until 2014, perhaps this should be your deciding factor.
The contentious atmosphere in Congress this year makes agreement on extending these deductions an unlikely possibility. Even if they agree to extend a portion of the deductions, it may never have the brute strength it does now for helping small businesses make much-needed investments in their future. If you’re considering making major investments in equipment and infrastructure for your business, even upgrading office computers to the latest operating system, now may be the time to make an accelerated move before year’s end, particularly if you have income this year to offset it. The financial benefits of making your move now rather than later are significant enough to warrant careful consideration at the very least.
This article can also be found in our Tax Tips section on the website.