Economic Stimulus for Small Businesses
In February, Congress approved H.R. 5140, the Economic Stimulus Act, to help bolster the slowing economy. Although much attention has been paid to the tax rebates contained in this legislation, if you are a small business owner you should be aware of an important tax change regarding small business investment, the expansion of the small business "expensing provision."
The expensing provision, also known as section 179 of the federal tax code, permits small businesses to deduct the costs of certain types of property from their taxes. The stimulus legislation increases the amount of property that can be deducted in section 179 from $125,000 to $250,000. Recognizing the potential boost for new small business investment, I had called for the provision's expansion and was very pleased it was included in the final legislation. This change will help small businesses immediately invest in equipment and machinery, making tomorrow's decisions today while creating new job opportunities.
Specific types of property that qualify for a section 179 deduction include: tangible personal property, which includes machinery and equipment; property contained in a building, such as a refrigerator or office equipment; gasoline storage tanks and pumps; storage facilities for petroleum or petroleum-based products; and off-the-shelf computer software. Farmers and agricultural producers should note that livestock and a single-purpose agricultural or horticultural structure, such as a barn or greenhouse, qualify for section 179 as well. Additionally, property that is used for both business and personal purposes can qualify for the section 179 deduction, but only if it is used more than 50% for business.
The types of property that do not qualify include buildings, rental property, and land improvements. For more information on what types of property do and do not qualify, see "How To Depreciate Property," publication 946 of the Internal Revenue Service. It is available online at http://www.irs.gov/pub/irs-pdf/p946.pdf.
The stimulus package also expands the "phase out" in section 179. Previously, the amount of the deduction was reduced by the amount of any property purchased in excess of $500,000. The stimulus package increases that phase out to $800,000 for tax year 2008.
An additional tax change in the stimulus legislation involves a bonus depreciation provision that allows 50% of larger capital investments to be deducted when purchased, applying primarily to equipment.
Small business owners create most of the jobs in the U.S. economy. The stimulus package recognizes this by including important incentives for small business owners to expand their businesses and give a needed boost to the economy.