The new tax law, the Jobs and Growth Tax Relief Reconciliation
Act of 2003, doesn’t just cut taxes for individuals, it also
contains two measures to help boost the economy by encouraging
business spending.
The new tax law, the Jobs and Growth Tax Relief Reconciliation Act of 2003, doesn’t just cut taxes for individuals, it also contains two measures to help boost the economy by encouraging business spending.
Here’s a quick overview of the new tax law:
Small and mid-size businesses can now expense up to $100,000 of the cost of business equipment purchased and placed in service during the year.
Expensing provides an immediate tax write-off instead of deducting the cost as depreciation expense over several years. This new limit applies from 2003-05. The previous limit for 2003 was $25,000.
Most tangible personal property used in your business qualifies for this tax break. Land, buildings, and certain other kinds of property are not eligible.
The benefit begins to phase out when your annual equipment purchases exceed $400,000.
All businesses can now claim bonus depreciation of 50 percent of the cost of new equipment in the first year. This is up from a 30-percent bonus depreciation under the old law.
The 50-percent bonus applies to new equipment purchased on or after May 6, 2003. Purchases made this year before May 6 are eligible for the earlier 30-percent bonus.
Remember that you can claim the bonus depreciation in addition to regular depreciation. Between them, these two provisions offer significant tax incentives for spending on business equipment.
If your business is eligible for both, you need to plan carefully to maximize the benefits. Both rules have some complex requirements and exceptions.
If you’re a manager or business owner, first put together your equipment needs and spending plan for the next couple of years. Then review those plans with the new rules in mind to make sure you are maximizing your tax savings.
Kris Nolan is a CPA with the accounting and business consulting firm of Bianchi, Lorincz & Co. in downtown Hollister.
