Some good news for small-business owners is (finally!) coming out of Washington, D.C. Dave Camp, a congressman from Michigan and the chairman of the U.S. House Committee on Ways and Means, which has oversight of taxation, has put forward a proposal to make the Section 179 tax deduction permanent.
The Section 179 deduction was potentially going to be capped in the next few years, meaning small businesses would lose the right to deduct the value of asset purchases from their income taxes. Instead they would have to depreciate the value of the asset over a period of years. This in effect makes the business pay more income taxes in the present, when it's most costly.
The purpose of the Section 179 deduction is to incentivize small businesses to invest, instead of simply writing a check to Uncle Sam. A great example is of a business buying a $200,000 welding machine. With a Section 179 deduction, the company could reduce its taxable income by $200,000, which could generate a tax savings of $70,000, making the true purchase price of the equipment only $130,000. The deduction currently allows up to $500,000 in asset purchases to be deducted. With Camp's proposal, that amount would fall to $250,000, a lower ceiling in exchange for making the deduction permanent. This gives small-business owners the ability to plan ahead, rather than rushing to buy equipment at the end of the year to take advantage of an expiring deduction.
The legislation is still in its early stage. Since it's public, small-business owners must show their support for a tax law that can only help them and help stimulate the economy.
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