Dec 28, 201512:43 PMVan Lines
with Joe Vanden Plas
An overdue holiday gift basket for small businesses
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We live in volatile political times. Witness the inter-party vitriol directed by the Tea Party against House Speaker Paul Ryan for the dastardly crime of reaching out across the aisle, working with Democrats, and actually getting something accomplished — especially for small businesses.
The man should be horsewhipped, except for the fact that the offending year-end bill offers some much-needed tax relief for small businesses, lifts an outdated oil export ban to boost the energy sector, and continues to fund the development of cleaner forms of energy. Notice there were wins there for both political parties, which is what has to happen if anything worthwhile is going to be accomplished with divided government.
And judging by the comments of local accounting executives and tax attorneys, the controversial legislative package has a number of worthwhile things for small businesses. Whether they are enough to improve economic conditions remains to be seen but I can’t help but think that Washington has finally done something for small employers.
Ron Berman, a tax attorney and CPA with the Neider & Boucher law firm, notes certain tax benefits kick in when a business acquires property, generally tangible personal property. Those benefits pertain to changes — permanent changes, thanks to the bill — in Section 179 expensing rules, bonus depreciation, and the research-and-development tax credit.
Under the new 179 expensing rules, a business can now expense up to $500,000 per year in purchases of eligible property. That was the limit from 2010 through 2014 but that would have gone down to $25,000 if the law had not been retroactively amended. This change is retroactive to tax years beginning in 2015 and the definition of Section 179 property was expanded to include more “qualified real property,” including certain computer software.
The limit for expensing is phased down if there is more than $2 million of 179 property that is placed in service in any given tax year. That also was the limit for 2010 through 2014 but that would have gone down to $200,000 if the law had not been retroactively amended.
“This change is retroactive to tax years beginning in 2015,” Berman notes, before adding the $500,000 limit and the $2 million phase-out threshold are indexed to inflation starting in 2016.
Section 179 expensing applies to tangible personal property primarily, according to Gordon Meicher, managing partner for Meicher & Associates. For anything that qualifies, there are three limitations in order to claim it:
- You must have active business income (wages at the individual level qualify).
- You can’t deduct more than $500,000 in any one year.
- There is an investment limit of $2 million per year; for every $1 over $2 million, you must reduce the $500,000. Accordingly, if you spend $2.1 on personal property, you are only allowed to claim $400,000.