Even as the dust continues to settle over this week’s midterm elections, the IRS has been reminding small- and medium-business owners that changes in the tax code could mean appreciable tax savings over the next few years. These saving are not part of the soon-to-expire Bush Administration tax cuts, whose continuance and in what form fuel ongoing debates. These particular savings are tied to capital investments under $2 million during this calendar year. But to take advantage of the tax break, companies must purchase new equipment and put it to use by the end of this year.
The relevant section of the Byzantine tax code is ‘Section 179‘ pertinent to capital investments. The Obama Administration adjusted the tax scales in this section back in September. At its most basic, the adjustment raises the limit of tax-free capital investment from $250,000 to $500,000. Better still, the equipment purchased in 2010 need not be depreciated for your business’s taxes in 2011:
Under SBJA, qualifying businesses can now expense up to $500,000 of section 179 property for tax years beginning in 2010 and 2011. Without SBJA, the expensing limit for section 179 property would have been $250,000 for 2010 and $25,000 for 2011.
The adjustments also take cars and vans into account, as the depreciation deductions are raised to $3060 and $3160 respectively.
Those in the restaurant industry are especially excited by the opportunity to deduct expansion or purchase of “qualified restaurant property” (property bought expressly to seat more customers).
In all these cases, the key provision (and the one likely designed to act as an economic stimulus) is that the materials or property must be bought and put into use by the end of 2010. If the deadline is met, the tax write-down will apply retroactively to all of 2010 income and to 2011 taxes as well.
Not everyone sees the adjustments as all pro-business, though. Janet Novak of Blogs.Forbes.com notes that the changes also include a rise in paperwork and taxes for owners of rental properties:
The new landlord provision requires all taxpayers owning rental properties to issue a Form 1099 to any unincorporated service providers (e.g. plumbers, painters, accountants) they pay $600 or more to in a year, beginning with payments made in 2011. Those 1099s (typically, a 1099-Misc) would, of course, have to be sent to the Internal Revenue Service as well.
Her colleague at the Forbes Blog, Dean Zerbe, notes her caveat, but generally sees the adjustments to the tax code as “a good opportunity to sharpen [accountants’] pencils and save significant tax dollars [for their clients] – improving that bottom line and hopefully leading to new jobs.” Be sure to contact your accountant if you are a small business or restauranteur to see what purchases you have made can be applied for the break. And if you were thinking of making some capital investments, why not make them now and enjoy the write-off? You’ll also be doing your part to stimulate the economy.
