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Good News for 2016 and Beyond
The good news this past December may have come too late for some small businesses that wanted to make large capital investments in 2015 but delayed doing so because of uncertainty that the $500,000 Section 179 deduction for capital equipment business expenditures would fall back to $25,000 as scheduled. That concern is now behind us as Congress passed The Protecting Americans from Tax Hikes Act of 2015 spending bill, which set the expensing allowance for new machinery and equipment expenditures permanently at the $500,000 maximum.
Buying, financing, or leasing expensive production technologies, delivery vehicles, or even new workbenches will always be an important part of operating any business in our industry and vital for annual fiscal planning in order to remain competitive and relevant. Equally important is the ability to offset costs and realize savings by deducting a good portion or all of those equipment costs each tax year. For business owners, that has meant relying on the assistance of Section 179 of the IRS tax code, which has been expanded in recent years to help reduce the tax burden for small business owners by allowing them to deduct the full price of capital equipment expenditures up to $500,000 in the current tax year as long as the equipment was obtained and put into service in the tax year of the filing.
Expanded dramatically as a part of the Economic Stimulus Act of 2008 to incentivize small business investment, Section 179 was originally slated to wind down in future years as the economy strengthened, and eventually be phased out altogether. However, a shaky economy over the last seven years has resulted in incremental increases in the maximum expensing allowance to $500,000 in 2010 from its 2007 limit of $125,000. Still, there have never been any guarantees that the dollar limit or extension itself would survive Congressional approval each year, and indeed since 2012 it has been saved from dropping back to a $25,000 deduction limit at the last hour (as in 2014 and 2015) or actually reduced to $25,000 (as in 2012) only to be retroactively reinstated the following year to the $500,000 limit. A section of the IRS code that was meant to spark small business spending, investment, and business growth in reality acted as a damper on making those large capital investments.
Now that the Section 179 deduction limit is permanently set at $500,000, business owners can finally map out a long-term strategic course for current and future equipment investments and business growth without waiting on Congressional action every year. This small victory may be the impetus to help jump start small business reinvestment, which is the backbone of the US economy. A recent survey conducted by Endurance International Group (endurance.com), a small business advocacy group, and released January 11, 2016 indicated that 77% of small business owners have a “positive” or “very positive” outlook for 2016 and more than half (57%) plan to make financial investments in their businesses this year. Here is hoping that 2016 proves to be a positive year for reinvesting in your business.