With all the commotion surrounding the presidential campaign, the current political environment makes it hard to see where tax benefits exist.
I have had the fortunate pleasure to be a part of the advisory board for NPES, the Association for Suppliers of Printing, Publishing and Converting Technologies. One of the items we discuss is government affairs and the effects on businesses in America today. As new initiatives arise, we make time in Washington, D.C. to lobby for our customers and for our businesses. We work on many important issues, from addressing the abuse of “patent trolls” by helping shape the reformation of our intellectual patent laws to working toward improving the Trans-Pacific Partnership trade agreement.
There is one specific topic being muted by this presidential election year that we need to bring to every small-business owner’s attention. That is the direct tax write-offs gained from asset acquisitions. From a tax perspective, this directly affects the thousands of small businesses (small businesses with $50 million or less of gross receipts) that we serve today when they take on capital investments, whether equipment or software. In a surprising outcome, at the very end of last year, Congress enacted legislation making Section 179 expensing permanent. This tax break is intended to make it more affordable for small companies to buy up to $500,000 a year worth of equipment like computers, software, machinery and vehicles. This means that Section 179 can provide SMBs with significant tax relief for the 2016 tax year, if that equipment and software is financed and in place by December 31, 2016. This same legislation also allows for bonus depreciation for five years, retroactive January 1, 2015, through December 31, 2019. Beginning in 2016, both expensing and depreciation will be indexed for inflation. These acts clearly make 2016 the year to make capital investments!
The special rules that allow expensing for computer software have also been permanently extended, as have the rules for expensing qualified real property. As a trusted advisor to both end customers and dealers, we must educate ourselves and our partners on these developments. The tax provision allows all customers to immediately write off qualifying capital items on their business’s taxes, instead of allowing for depreciation over a number of years. That has the effect of lowering a business’s taxable profits, sometimes significantly.
Positioning this value to small- and medium-size businesses becomes critical in their purchasing decision. The best approach is to explain that the current favorable Sec. 179 and bonus depreciation rules can be a big tax-saver when making capital investments. We should not represent ourselves as tax experts however; we should point out to them that they should consult their tax adviser for details on how to most effectively take advantage rules.
With these pro-capital investment policies in place, small to medium businesses can make buying decisions knowing they have the power of rapid capital cost recovery behind them.