Equipment financing and leasing is a vital part of small business. Whether acquiring industrial appliances, new fleet vehicles, technology hardware or even ergonomic chairs for employees, small businesses are almost constantly involved in equipment decisions. And as such, they know the importance of engineering savings in those transactions.
One path to such savings that many small business owners depend on is the Section 179 deduction of the IRS’ tax code. Enacted to assist small business owners, Section 179 allows them to deduct the full price of an equipment procurement, provided the equipment is obtained and put into service in the tax year for which the filing applies. It’s proved a boon for small business owners, but fluctuating political and economic factors have spelled an uncertain future for Section 179.
As ever, small business owners need to keep informed and updated on the most important equipment leasing and financing regulations governing small businesses.
Extension reached in 2014, but expires for 2015
When the recession hit, small businesses needed a spark to get the economy moving again. As part of stimulus measures, the Section 179 limit was raised for several years to $500,000 in equipment purchases for a tax year, while also having the bonus depreciation measure added to it.
However, once the economy began to regain normality, the $500,000 limit was no longer a guarantee, and for the most recent years, has survived on a year-to-year basis, usually being extended at the last moment.
Such was the case at the end of 2014 when a lame duck Congress passed a number of tax extenders, including a measure that made the 2014 tax year Section 179 limit $500,000. Yet no such extension agreement was reached for 2015, and as of now, the Section 179 deduction for 2015 will be only $25,000.
New Congress, brighter future for 179?
While a number of factors may affect Section 179’s future, none could prove as influential as a newly Republican controlled Congress. A recently won majority in the Senate gave the party bicameral control, and the historically business-friendly GOP may be looking to not only bump the deduction limit in 2015, but pave a way for a permanent level.
Farming and agriculture businesses are particularly equipment-dependent and industry voices have piqued interest in a permanently high 179 deduction limit. National Milk Producers Federation CEO and President Jim Mulhern recently noted while the 2014 extension will be of benefit, the 11th hour nature prevents business owners from taking full advantage.
“Dairy farming requires significant investments in equipment,” Mulhern said. “But farmers shouldn’t have to wait until the last few weeks of the year to find out how they can write off a new tractor or milking machine. Failure to restore Section 179 permanently will add to the financial strains on farmers who already find it difficult to pass on their farms to the next generation.”
This holds true for small business no matter the industry, making many unsure of how to proceed with equipment procurement in an uncertain tax environment. To provide clarity and support, many have noted buzz around making a $500,000 or similar limit for the Section 179 deduction a permanent fixture.
Yet while the case holds water, Inc.com noted the political time might not be right.
“I don’t expect there to be sweeping tax reform during the next two years – it’s just too big an issue to address in the run up to a presidential election,” Gene Marks, owner of professional services firm Marks Group, wrote in Inc. “But some tax tweaks will happen, namely the reinstatement of the Section 179 deduction … [s]o go ahead and start buying capital equipment in 2015 – you’ll soon see the benefit.”
What to do
As Marks noted, small businesses may be emboldened enough to operate throughout 2015 under the assumption the $500,000 limit will be extended. Still, it may be of greater service to work with an equipment leasing and financing provider to best devise a strategy for 2015 equipment procurement strategy.
One thing is certain, however, and that’s small business owners should prioritize equipment and other working capital expenditures as Congress may be looking through rosier business taxation glasses.
