Reform Provides Tax Relief by Increasing the Amount Small Businesses Can Expense Capital Equipment
Washington, DC - The Senate today adopted an amendment introduced by Colorado U.S. Senator Michael Bennet that increases the amount small businesses can expense or write off for capital equipment in its first year of use. The amendment, passed by a voice vote, will help ensure that they can continue to grow, invest, and hire.
"This amendment lowers taxes and increases the amount of money that small businesses can expense in a given year. It makes it easier for them to purchase new equipment and grow the economy," Bennet said. "It's especially important in a place like Colorado where small businesses drive our economy. As we begin the process of reforming our tax code, we need to ensure that these types of small businesses can continue to grow, invest, and innovate."
Section 179 allows small businesses to expense or write off the costs of certain capital equipment in the year that they place the equipment into service rather than allowing it to depreciate it over time.
Under the current law (since January 1, 2015), small businesses can use Section 179 to expense up to $25,000. The amount that can be expensed begins to be phase out when the cost of the equipment exceeds $200,000.
In recent years, however, the tax extenders package has increased the amount that can be expensed to $500,000-often retroactively, with the phase out beginning at $2 million.
The amendment would create a deficit neutral reserve fund to increase the Section 179 expensing limit to $1 million permanently. It also raises the threshold at which the phase-out begins to $2.5 million.
The higher limit $1 million limit is especially important as Congress begins work on tax reform. Many small businesses such as partnerships and limited liability companies pay the individual tax rate but use business tax expenditures. Tax reform may eliminate many of these expenditures with the goal of reducing the corporate rate. As a result, many small businesses may lose the use of certain tax expenditures without seeing a corresponding reduction in the individual tax rate.
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