Editor's Note: Section 179 Death Means Taxes

June 18, 2014

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This critical portion of the tax code that had allowed businesses, especially small manufacturers, to fully write off their equipment purchases in the first year reverted back to pre-recession rules at the beginning of 2014, stifling small business investment.

The expensing limit for businesses' equipment purchases – aka Section 179 of the tax code – reverted back to the pre-recession level of $25,000 this year, in a major blow to small business owners seeking tax relief. Last week, it got some life as the House passed a bipartisan bill (H.R. 4457) that would permanently restore the limit to $500,000 plus real property and computer software deductions.

From 2010-13, Section 179 incentivized small manufacturers to purchase new equipment and technology while giving them a measure of stability, which in turn promoted growth and hiring. That they were able to fully write off purchases in the same year helped significantly, as small manufacturers are critically reliant on cash flow to finance reinvestment. Now, uncertainty is manifesting through an extended drag in capital outlays in a small business index, in which business owners have cited taxes – not sales – as their biggest problem for a while now.

Reinstatement has bipartisan support in the Senate, but in that house Section 179 is lumped into a broad extenders package and is only a two-year extension. The Senate bill has to wait for amendments and likely the November elections, plus there’s no telling yet how the House and Senate versions will be worked out. But one thing is certain: Death of extended Section 179 limits would hurt small business. William Ng, Editor-in-Chief, wng@thomasnet.com.

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