Small biz gets tax breaks

The economic stimulus plan President Bush signed into law in mid-February includes several tax breaks for small business, effective in 2008. The changes are intended to encourage businesses to make capital investments.

The change that will affect the greatest number of businesses, according to MRA Washington counsel James Goldberg, is an expansion of “bonus depreciation,” which allows investments in tangible property, computer software or improvements to leased property to be depreciated more quickly. Businesses of all sizes will be allowed to depreciate 50 percent of the cost of an asset put into use in 2008.

The Senate Finance Committee estimates that this amendment will provide $43.9 billion in federal tax savings to U.S. businesses over the next two years, reported CNNMoney.com.

Another provision increases the limits associated with so-called “Section 179” deductions. Businesses with up to $800,000 in annual qualifying equipment purchases may expense investments in any tangible business purchases (not including buildings, but including computer software) of up to $250,000, instead of depreciating them. These caps are increases from the $500,000 annual equipment purchase cap and $125,000 deduction limit under current law.

Businesses considering investments in equipments or other improvements may wish to consult a tax attorney regarding the new federal law, which may affect state taxes as well.