Small businesses have finite, and often small, budgets for their operations. As a result, they have to do a much better job of anticipating where spending will be needed in any given year so they can properly reserve and allocate funds. Lucky for them, two of the three biggest trends in small business spending in 2016 won’t be budget-busters, and the other one could make the difference between a year in the black and a year in the red.
Starting with the latter; in the closing days of 2015, Congress passed a spending bill that makes the Section 179 deduction permanent. This part of the federal tax code was written to allow small businesses to deduct the equipment they buy for their businesses from their taxes. It was a great idea, because it encourages small businesses to reinvest in their operations and it can significantly lower a business’ taxable profit. The problem is Section 179 has been the perennial political football. The overall deduction was as much as $500,000 at the beginning of this decade–and as little as $25,000. Section 179 got something of a public relations black eye in 2004 when it was labeled the “SUV Loophole” or “Hummer Deduction” because small business owners were allowed to use it on large personal vehicles as well as commercial trucks.
Now, small businesses will be able to write off up to $500,000 in qualifying equipment every year, permanently. It is still possible to use it to buy a vehicle for your business, but the IRS has not yet issued guidance on how big a vehicle deduction you’ll be able to claim. Regardless, you can make some concrete plans for acquiring a wide range of goods, and match that spending to the ebb and flow of your income this year. Small business owners should also know there are now more ways for them to finance equipment, whether the items they need are new or used, and whether the deal is a lease or an outright purchase.
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