The National Federation of Independent Business/California is urging the state's congressional delegation to vote "yes" on a measure that would let employers deduct the full value of new equipment and capital improvements immediately instead of over a period of years or even decades. The bill is expected to come up for a vote in the House on Thursday.
Under existing law, only $25,000 of investments can be deducted the first year. HR 4457, also known as America's Small Business Tax Relief Act of 2014, would permanently raise the limit to $500,000. The limit has temporarily been set at $500,000 for four years—and has been higher than $25,000 for the past 11 years—but it will revert to $25,000 unless Congress acts soon.
"This would have a huge impact on small business," said NFIB/CA Executive Director John Kabateck. "This legislation would simplify accounting and free up cash that could be reinvested to help grow the business," he said.
Here are some examples of how HR 4457 would affect small businesses:
- Today, if a contractor spends $60,000 on a pickup truck and a cargo van, he could deduct only $25,000 of the purchase price on this year's taxes. The remaining $35,000 would be written off over a period of five years.
- Under existing law, if a small-business owner invests $50,000 on new office furniture and computers, she could deduct only $25,000 of that expense on this year's taxes. She would have to depreciate the cost of the computers over a period of five years, while the furniture would be depreciated over seven.
- If a pizza shop spends $100,000 on new ovens and countertops, the owners could deduct only $25,000 of that on this year's taxes. The remaining $75,000 would be depreciated over the next 39 years.
HR 4457 would let them deduct the full amount of these qualifying investments on the current year’s taxes.
"There's no good reason any business should have to depreciate purchases and improvements over so many years," Kabateck said. "The improvements and investments small-business make today can easily become obsolete long before they've finished depreciating them on their taxes."
NFIB has joined other leading business groups in signing a letter urging Congress to pass HR 4457. Click here to read the letter.