For years the backs of small businesses have been pressed against a wall when it came to the tax implications of capital expenditures. The allowable deduction was $25,000, but federal lawmakers would routinely vote to increase that number some time during the latter part of December. The move would make them look good, but do little for small businesses scrambling to figure out how to spend money at a time when most people are stringing up lights and listening to “White Christmas.”
The air of uncertainty that hovered over us reminds me of a line from the movie Dirty Harry where Clint Eastwood says: “ . . . you’ve got to ask yourself one question: ‘Do I feel lucky?’ Well, do you, punk?”
Trust me, there were plenty of years when my business partner Kevin and I were wondering if we were going to get lucky. Our firm has an annual growth rate somewhere between 10 to 30 percent. Spending money on equipment to fuel our growth and not knowing the tax consequences was nail-biting.
Nail-biting until now, that is. On December 18, 2015, the “Protecting Americans from Tax Hikes Act of 2015” (PATH Act) was signed into law. According to Section179.org, the bonus depreciation and Section 179 tax breaks allows small businesses to take upfront deduction for qualified capital expenditures (this includes new or used equipment and off-the-shelf software “put into service” in 2016) of up to $500,000. The bonus depreciation incentive applies to new equipment and gives companies a 50 percent depreciation on expenditures above the Section 179 cap. The best part? The law is permanent.
An example shows the magnitude of this big tax break incentive for small businesses. Before the law, if you spent $100,000 on equipment, you could only expense $25,000. Then, you paid 30 percent in taxes turning that hundred grand into a $130,000 purchase. Now, the deduction limit is $500,000 until the end of 2016. Here’s a handy Section 179 Calculator if you would like to see what your savings will be for this year.
Now, the air of uncertainty is gone, making us all breathe easier. The push behind the law was five years of work in the making. The Small Business Advocacy Council, along with its partner the National Small Business Association, pressed Washington DC for this groundbreaking tax incentive legislation, and in December of 2015 those efforts paid off. Its one of the SBAC’s biggest accomplishments.
As a member of the executive board of the SBAC, I am extremely proud of our work here and know that it will make a tangible difference for small business owners, and for Illinois commerce as a whole. Beyond the obvious boost to small businesses bottom line, the tax breaks encourage investing in our country, in Illinois and in our companies.
The air of uncertainty has been displaced with confident investing throughout the year, allowing all of us to breathe easier as we spend more on growing our businesses.
Steve Banke is founder and CEO of 3Points, LLC. Stay tuned for future articles on small business topics in both the 3Points newsletter and blog posts. If you want to know more about the SBAC, email Steve or call him at (708) 491-0300.