I think one of the most important untalked about business deductions is the hugely reduced Section 179 deduction in the Internal Revenue Code. Right now, without Congress’s action, this amount is limited to $25,000 – it has not been this low since 2003.
So why does this matter? Section 179 allows business (and Sole Proprietors) to deduct the Section 179 amount in addition to or in place of depreciation in some cases. The biggest factor in determining the availability of this option is that the newly acquired asset must be new, not used goods. So how does this benefit business? Besides the increase in expenses or deductions against income, Section 179 has a direct impact on manufacturing as it encourages businesses who are looking to buy equipment to buy NEW goods rather than priced reduced USED goods which can only be recovered through regular depreciation methods over the life of the asset – which could be as high as 7 years. By giving businesses the option of spending more on a new asset but getting a lowered tax bill versus buying a used piece of equipment and paying more taxes, the choice becomes pretty simple for the business owner.
But the impact is not just about one companies tax savings, buying used equipment has no positive impact on manufacturing when the economy is struggling (other than to possibly buy the used goods from another struggling business). Giving businesses an almost no-brainer option to buy new goods and save on their tax bill creates manufacturing for those goods which in turn possibly saves other businesses in the supply chain, ultimately saving jobs throughout the economy.
However, Congress over the last few years has waited – literally until the year was almost over – to extend the Bush Tax Cuts and increase Section 179 from $25,000 to $500,000. The result of these delayed decisions is that businesses are unsure what the effect of their spending will be. They are put in a dilemma of trying to decide the best financial decision on purchases – do we buy the new asset and risk cash flow without a tax break or do we buy the used and knowingly get a higher tax bill. The are left trying to make a decision on the overall cost of a purchase without knowing a huge key factor in those costs. This type of business planning stagnates businesses growth where financial decisions could be put on hold because the impact is too undeterminable.
In my opinion, Congress needs to stop playing games with the Tax Code and Section 179. This should be a decision that is decided prior to the start of a tax year, not an after the fact last minute vote that business owners now can’t even take advantage of once passed. Business owners need to make financial decisions every day. They need to be able to plan large purchases into their capital budgets and shouldn’t have to keep waiting on Congress.
Currently, Congress has not acted on Section 179 this year and the amount of Section 179 expense is limited for 2015 to $25,000. Section179.org has a petition online to have Congress reinstate the value back upto $500,000. As of today they still need 2,107 signatures by Sept 14th.
Please visit http://www.section179.org/petition.php and sign the petition today.