Small Business Tax Cut

10-22-03

(Philadelphia & Conshohocken, PA)

(Philadephia & Conshohocken, PA) For small businesses, buying new technology just got less taxing- literally. A new $350 million tax-relief package, signed by President Bush in May, quadruples the amount of new equipment- including technology equipment and off-the-shelf software- small businesses can expense from $25,000 per year to $100,000. In addition, businesses can deduct another 50 percent in new equipment depreciation, up from the previous 30 percent. The new tax-cut bill, which offers a raft of benefits for small businesses, is meant to give the anemic U.S. economy a much-needed boost. Tax Law Summary: The new tax deduction allows for up to $100,000 in equipment expenses- called Section 179 Expensing- and remains in effect through 2005. It also applies retroactively to purchases made on or after January 1, 2003. Any small business that spends less than $400,000 in new equipment each year qualifies for the deduction. The law covers office furniture, heavy SUVs or trucks, computer equipment and off-the-shelf software. In addition bonus depreciation jumps to 50% for property acquired after May 5, 2003 and before January 1, 2005. What The Tax Cuts Mean In effect through the end of the 2005 calendar year, Section 179 Expensing is retroactive to purchases made on or after January 1,2003. Any small business that spends less than $400,000 in new equipment each year qualifies for the tax deduction, limited to $100,000. The previous law allowed for $25,000 in expenses with a phase out cap of $200,000 on expenditures. The law, which covers computer equipment, office furniture and heavy SUVs or trucks, now allows businesses to expense off-the-shelf software. The previous law didn't allow expensing of off-the-shelf software, Kross adds. The additional 50 percent in immediate deductions is called a "bonus 50 percent depreciation." In tax terms, depreciation is the cost of using an asset over time and it's considered an expense. Typically, businesses write off depreciation of assets in five to seven-year increments. The new bonus depreciation allows small businesses to immediately expense their equipment purchases by 50 percent in the first year they purchase the products.

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