While much of the press has focused on lower rates for individual taxpayers, as well as dividend and capital gains tax relief, the Treasury Department estimates that small- and mid-sized businesses will be a significant beneficiary of the new law, with enhanced expensing for new investment and additional first-year bonus depreciation deductions.
Many of the changes are temporary, lasting only a few years, and will require yet another act of Congress to make them a permanent part of the tax law. The following are several key tax law changes that relate to businesses.
* Last year, the Job Creation and Worker Assistance Act of 2002 provided for a bonus depreciation deduction equal to 30 percent of the cost of qualified property acquired after Sept. 10, 2001, and before Sept. 11, 2004, and placed in service before Jan. 1, 2005.
The act extends the 30 percent bonus depreciation acquisition period to Dec. 31, 2004. More impressively, it establishes a 50 percent bonus depreciation deduction for qualified property acquired and placed in service between May 6, 2003, and Dec. 31, 2005.
A business may elect either 30 percent or 50 percent bonus depreciation if both are available.
* To conform the luxury auto depreciation dollar limits to the enhanced bonus depreciation rules, the law raises the bonus depreciation amount that may be taken with respect to automobiles from $4,600 to $7,650.
* Section 179 of the Internal Revenue Code provides taxpayers with an opportunity to treat the cost of qualifying property as a deduction rather than as a capital expenditure. Qualifying property continues to be defined as depreciable tangible personal property that is purchased for the active conduct of a trade or business.
Small businesses are entitled to an increase in the amount of the annual deduction allowed for Section 179 property to $100,000 for 2003 through 2005. Businesses that place more than $400,000 of qualified property in service in any year are subject to a phase-out of the $100,000 limit.
For 2004 and 2005, the $100,000 deduction is subject to cost-of-living increases. Unless extended, the $100,000 allowable expense option reverts to $25,000 in 2006.
* Off-the-shelf computer software is added to the definition of items qualifying as Section 179 property. Qualifying computer software is defined as software that is readily available for purchase by the general public, is the subject of a nonexclusive license and has not been substantially modified.
Database software is not included except to the extent that it is available in the public domain and is incidental to the operation of the otherwise qualifying software.
* Any corporation owing a quarterly estimated income tax payment in September 2003 is entitled to defer 25 percent of that payment until Oct.1, 2003.
No explanation was provided for this modest deferral. However, Congress may have wanted to push revenue into the following year because the government's fiscal year begins Oct. 1. Lawrence J. Sipos is director of tax operations for Alpern Rosenthal Inc. Reach him at (412) 281-8420 or email@example.com.