As 2015 winds to a close and tax season approaches, small business owners got some good news when the limit for a popular tax deduction was drastically increased.
According to Time, many entrepreneurs have been anxiously waiting to find out if Congress will pass the tax extenders package, which would raise the fiscal cap for the Section 179 deduction in 2015 from $25,000 to $500,000.
On Friday, President Obama signed the new bill, and millions of small business owners simultaneously exhaled. The deduction, which is aimed at simulating the economy, will cover business-related purchases of computers, furniture, vehicles, and machinery.
Many business owners were hesitant to spend more than the previous limit of $25,000 on equipment before the bill was passed, including Anne Zimmerman, a CPA from Cincinnati, OH. Now that the deduction limit has increased, she plans on making a few new investments before 2016 arrives.
“We’ll buy additional servers and other internet equipment that we need for our business,” Zimmerman said.
While it may be tough to cram in too many last-minute purchases before the calendar changes, the new Section 179 provision is permanent and will enable small business owners to do better long-term planning for next year and beyond.
“Small businesses can operate in 2016 knowing what the rules are,” said Paul Gevertzman, a tax partner at Anchin, Block and Anchin in New York City.
The U.S. Small Business Administration says that insufficient capital is the second biggest reason why small businesses fail, right after “lack of experience.”
The increased deduction limit will provide many small businesses with necessary capital to pay off debts and start 2016 with a clean slate. Steven Elliot, who owns a manufacturing plant in Edgerton, OH, can now offset $500,000 in profits his plant made as a result of the new bill.
“We won’t pay very much in taxes this year,” Elliot said. “That’s the great benefit.”
Tax season is looming, and President Obama signed the new provision at the perfect time. According to Business.com, nearly half of the respondents to a National Small Business Association survey said that federal taxes are one of the biggest challenges they face.
Tax problems will be a bit easier to deal with this year considering the substantial increase to Section 179, and small businesses owners would be wise to take advantage of the new provision.