ATR is proud to support a new bill by Senator Jeff Flake, the "Small Business Investment Promotion Act." We urge all senators to support and co-sponsor this pro-growth, pro-jobs, pro-taxpayer legislation.
The bill increases the dollar amount of business assets that a small employer may expense (as opposed to depreciate) under Section 179 of the I.R.C. Under the bill, businesses may expense up to $250,000 in business tangible personal property, with a phaseout starting at $800,000 of such property purchased in a year. These dollar amounts would be indexed to inflation. Computer software and certain real property would also be eligible for 179 expensing on a permanent basis.
This is a huge improvement over current law. If Congress does nothing, the amount of property that can be expensed will fall to just $25,000 in 2014 and onward.
Any property not immediately-expensed under Section 179 would be subject to complex depreciation rules. For example, if a business purchased a computer for $1000, under depreciation that entire cost cannot be subtracted from the business' taxable income in the year of purchase. Rather, it would be subject to partial deductions each year until the full cost was recovered (in the case of a computer, this takes–in effect–six calendar years, longer than the life of any computer).
Not only is depreciation a needless complexity in our tax system–it involves the tax system in picking winners and losers. A company can write off the full cost of hiring a new employee, the full cost of going on a business trip, the full cost of buying a box of staples–but not the full cost of buying a computer under depreciation rules. That distorts business decisions for non-business reasons.
The "Small Business Investment Promotion Act" gets small- and mid-sized firms out of this trap. By allowing the first $250,000 of business tangible personal property to be expensed, family-owned and operated employers can recover the cost of new business fixed investment in year one. Ideally, all businesses of any size should be able to fully expense property, but this is a good first start.