Congress Renews Tax Break on Equipment Purchases

Business owners still have time to take advantage of the full deduction by purchasing and putting into service new equipment by year’s end
Congress Renews Tax Break on Equipment Purchases

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Small-business owners who made a substantial equipment investment in 2015 can head into the new year knowing they will be able to claim a deduction on those purchases to the tune of $500,000 come tax time. And businesses that have kept their spending in check because of the uncertainty surrounding the Section 179 limit, still have time to take advantage of the full deduction. They just have to act fast. Equipment must be purchased and put into service by year’s end to qualify.

As it did in December 2014 and years prior, Congress recently extended the $500,000 Section 179 deduction that has been in place since 2010. The deduction is typically capped at $25,000, but it has gradually increased in recent years, though only as a temporary measure that requires annual renewal. That Congressional reauthorization has often happened late in the year, making the planning of equipment purchases difficult for small businesses counting on the tax break. This time, Congress has made the $500,000 limit permanent.

“Having this become permanent makes my business planning for the next few years a whole lot easier,” Jerry Kortesmaki, owner of a machinery rental company in Duluth, Minnesota, told the New York Times. He says this year he is using the deduction to help pay for approximately $200,000 of new equipment and that it has allowed him to quickly grow his company.

Kortesmaki was so confident Congress would eventually extend the $500,000 cap that he proceeded with all his planned capital purchases in 2015, but other business owners have been more hesitant to buy with the year-to-year uncertainty over the Section 179 limit.

“The uncertainty drives my clients up a tree,” Paul Neiffer, an accountant with CliftonLarsonAllen in Yakima, Washington, told the New York Times. “Not knowing each year if it will be extended prevents a lot of our (clients) from pulling the trigger on buying equipment.”

In past years, once Congress finally does act, some businesses attempt to fit in a few more equipment purchases. Accountant Anne Zimmerman owns two Cincinnati-based businesses. As of President Barack Obama’s signing of the bill extending the $500,000 cap, she had only made about $25,000 worth of qualifying purchases in 2015, she told Money magazine. Zimmerman is now considering additional expenditures before 2015 comes to a close in order to deduct them on this year’s taxes.

“We’ll buy additional servers and other Internet equipment that we need for our business,” she said in the Money magazine article.

But Congress’ trend of renewing the cap late in the year as often prevented businesses from making large equipment investments. That’s why the real benefit of this year’s extension of the $500,000 limit is that it is now permanent, said Sherry Wuebben, an equipment dealer in La Crosse, Wisconsin, in the New York Times article.

“You can’t plan to spend that kind of money with just two weeks left in the year,” Wuebben told the New York Times. “We might see some activity this year, but the real benefit for us will come next year, when customers can plan ahead for it.”


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