The Small Business Jobs Act, which was signed into law on Sept. 27, 2010, included several provisions designed to provide tax incentives and relief to businesses. There are several other provisions in the law designed to encourage lending to small businesses.
It is uncertain if these provisions, at least at their current levels, will carry over into 2012 and beyond. Therefore, since 2011 will end quicker than we think (where did the rest of the year go?), now is a good time to think about adding capital equipment – like printers, laminators and software – to ensure you can take full advantage of the current incentives.
Some of the key tax-saving provisions of the law include an increase in the Section 179 deduction and an extension of bonus depreciation.
Section 179 Expensing: The law increases the maximum amount that may be expensed under Code Section 179 to $500,000 and raises the phase-out threshold to $2 million. This means that business owners who purchase capital equipment for use in their business may be able to deduct the total cost of the equipment in a single tax year rather than depreciating it over a number of years. The enhanced provisions apply to tax years beginning in 2010 and 2011.
For instance, assuming a 34% tax rate, if you were to purchase a $30,000 printer, the tax savings on the Section 179 deduction would be $10,200. The cost of the equipment, net of tax savings is $19,800.
The new law also allows taxpayers to expense qualified leasehold investment property, qualified restaurant property and qualified retail improvement property. The maximum amount with respect to real property that may be expensed, however, is limited to $250,000 of the $500,000 overall limit.
This is a significant increase to the amounts that were previously available to expense. Prior to the enactment of the Small Business Jobs Act, the limit was $250,000 for 2010 and $25,000 for 2011 and real property improvements did not qualify for Section 179.
Bonus Depreciation: This provision originally allowed for an additional first-year depreciation deduction equal to 50 percent of the adjusted basis of the qualified property. However, the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 provides a 100 percent depreciation bonus for capital investments placed in service after Sept. 8, 2010 through Dec. 31, 2011.
For equipment placed in service after Dec. 31, 2011 and through Dec. 31, 2012, the bill provides for a 50 percent depreciation bonus. It’s simply another good reason to think capital purchases before the end of this year.
Be sure to consult your tax advisor to determine which of these tax-planning tips can provide the best benefit for you and your business.