Small Business Expensing
Expensing provides an incentive to invest in the business and immediately puts money back into the business. It also simplifies the tax code by allowing an immediate deduction, instead of depreciation deductions over a specified recovery period. Section 179 of the Internal Revenue Code allows small businesses to elect to deduct the total cost of certain qualifying property in the year it is placed in service. However, there are limits on the amount you can deduct in a year and on the types of property that qualify.
History
NFIB has long fought to increase the small business expensing limit, which recently was as low as $25,000 in the year of purchase. NFIB members usually exceed the $25,000 mark in just three months. In 2007, the expensing amount was increased to $125,000 (increased annually for inflation) and the stimulus bills in 2008 and 2009 increased the amounts for those years to $250,000.
Current Legislation
In 2010, Congress passed two laws (The Tax Relief Act of 2010 and The Jobs Act of 2010) providing temporary relief for small business. The Section 179 expensing limit was increased to $500,000 and the total amount of equipment that can be purchased was increased to $2 million until 2012. In addition, the law expands the property eligible for expensing, which includes real property in certain businesses (retail, restaurants, leasehold property).
NFIB will continue its fight for Congress to pass a permanent solution to this important small business incentive. This will allow small firms to plan for the future and expense additional investments and therefore enabling those businesses to expand and create new jobs.