Congress Extends Key Small Business Tax Break

Following the passage by the full House and Senate, the new tax package could be on President Bush's desk as early as next week. Under the new package, a sweetened business expensing provision first passed as part of the 2003 tax bill would be extended through the end of 2007.

That provision increased the limit on expensing purchases of so-called "section 179 property" (including technology equipment) to $100,000 from $25,000, subject to certain limits.

However, the fate of another important small business tax break is uncertain at this time. This provision allows a business that purchases more equipment than can be expensed in one year, to deduct 50 percent of the remaining cost in the form of a bonus depreciation.

This applies only to equipment purchased before December 31 of this year. If this tax break were not extended, the bonus depreciation would fall to 30 percent for new (but not used) equipment purchased after the end of 2004.

In many cases, both of these tax breaks can be used in combination, providing substantial savings for small businesses making new capital investments.

Failure of Congress to extend both tax provisions could dampen small business enthusiasm for new technology spending. This would adversely affect the channel at a time when CRN research data show solution providers are already limiting their enthusiasm over future IT spending growth. (See latest report: Technology Spending Outlook.)

John Roberts is Director of CRN Research. He can be reached a [email protected].