Section 179 Limits and Planning

By July 28, 2014 Businesses

It’s the end of July.  Do you know where the Section 179 limits renewal is?  As of right now, it sits in limbo.  For the last couple years, companies have been able to use Section 179 expensing as a planning opportunity to write off up to $500,000 in new asset purchases rather than depreciating them over 5, 7, or even 15 years.  This year, without a renewal, the Section 179 limits have dropped to $25,000.  Even that small amount begins to phaseout if your asset purchases exceed $200,000.

As a result, a business owner could be looking at a tax bill that is as much as $188,100 higher if they have a flow through entity and are in the top tax bracket.  What it really means is that new equipment over $25,000 no longer carries that tax shield discount of as high as 39.6%.

Without a renewal of last year’s Section 179 limits, many companies may be planning on slowing down capital growth.  In other cases, companies are coming to realize that they will need to set aside a significant amount of cash to cover the additional tax burden.

Congress may choose to wait until after the mid-terms this November to consider a renewal.  Some have suggested that the retirement of Dave Camp (R-MI) and loss of Eric Cantor (R-VA) could make any movement on tax legislation difficult this year.  There is also the possibility that the government could wait until the last minute, or slightly past the last minute, and pass a renewal retroactively.

In the meantime, we will continue to monitor the situation.  If you have questions about tax planning, how much you can deduct in new asset purchases, or other tax planning opportunities please don’t hesitate to contact us.