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Great Tax News for Growing Businesses
- Renée C. Vidal,
Esquire
If your business is
expanding and you
need to purchase new
equipment, the
federal government
has just provided an
incentive to make
investments in
depreciable property
within the next few
years. The Jobs and
Growth Tax Relief
Reconciliation Act,
signed into law on
May 28, 2003
provides tax relief
to business owners
who need to make
capital investments
in equipment or
business property
over the next few
years through in
increase in the
amount that can be
deducted as an
expense under §179
and increasing the
first year
depreciation
deduction.
Section 179
generally permits a
small amount of
expenses that are
otherwise subject to
the depreciation
rules to be deducted
in the year
incurred. The Act
has significantly
expanded the amount
that can be
expensed. Prior to
the Act, a business
was permitted to
expense up to
$25,000 of qualified
property provided
the total amount of
the property did not
exceed $200,000. The
new rule permits a
business to deduct
as an expense up to
$100,000 of
property, with a
phase out of the
deduction if the
total amount of such
property exceeds
$400,000. The
generosity is not
without a catch
however. The
increase in the
amount of the
deduction only
applies to qualified
property purchased
in taxable years
beginning in 2003,
2004 or 2005. After
2005, the old rules
come back into play.
To make the deal
even sweeter, the
Act also increased
the first year
depreciation on
qualified property
to 50% for property
acquired after May
5, 2003 and placed
into service before
January 1, 2005.
You can combine the
§179 deduction and
the first year bonus
depreciation
allowance. For
example, if you
purchase office
furniture at a cost
of $400,000, you can
deduct $100,000 of
the cost in the year
the expense is
incurred, leaving an
adjusted basis of
$300,000. That
remaining amount is
subject to the 50%
first year bonus
depreciation
allowance, leaving
an adjusted cost
basis of $150,000.
Then you also take
the standard
depreciation
deduction of
$28,580. The result
is in the first
year, you can deduct
$271,435 on property
that is otherwise
subject to
depreciation over 7
years.
There are certain
qualifications to
take advantage of
the new provisions.
If you would like to
evaluate whether you
can take advantage
of these provisions,
we would be happy to
meet with you to
discuss the
qualifications in
more detail. You can
contact Renée C.
Vidal through this
link or by calling
(856)824-1001.
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