The $350 billion tax cut signed into law in May offers a significant boost in federal write-offs for companies that buy equipment ranging from computers to business furniture. People who own a small business, or even a sideline enterprise, can immediately write off as much as $100,000 a year in purchases of new equipment instead of depreciating it over several years. Prior to the new tax breaks, the limit in any one-year was $25,000. Act quickly if you are planning major purchases to take advantage of the tax savings. As things stand now, this new $100,000 expensing limit is due to expire at the end of 2005, unless Congress votes otherwise.
Here’s what you need to know to take advantage of the new limits:
- The law does not change how much can be written off technically, instead it speeds up the process —up to the specified $100,000 ceiling in any given year--delivering the write-off tax benefits faster to small business owners.
- Equipment may be purchased new or used. The new law quadruples the limit on "Section 179" expensing, which allows companies to write off up to 100 percent of the cost of "qualifying property" in the year it is put into service. Qualifying property includes most business furniture and equipment, including computers.
- Some of the larger sports utility vehicles--and other autos that weigh more than 6,000 pounds --qualify for the new tax write-offs if they are purchased for business use.
- The new law also allows for an accelerated depreciations schedule for property that usually would be written off as per standard depreciation tables. For property purchased after May 5, 2003, business can claim a 50 percent bonus depreciation, which is added on to the normal depreciation write-off for that particular item of property. This bonus depreciation provision expires at the end of 2004.
- The increased tax write-off benefits small businesses. Companies whose eligible equipment purchases exceed $500,000 in any given year cannot take advantage of the $100,000 Section 179 deduction. And, the ability to expense eligible equipment in the year purchased is phased out for those companies whose spending exceeds $400,000 in any given year—though deductions may be spread over a longer time span.
If you are thinking of investing in new equipment for your business, plan your purchases around the new write-offs to get maximum tax relief. For more guidance on how to proceed or more information on what’s covered and what limitations apply, please contact our office.