Asset Expensing for Small Businesses

When a business purchases some asset (e.g., computer, desk, truck, shelving, etc.) the business cannot necessarily write that purchase off as an expense. The tax rules dictate that if the asset is projected to last longer than a year, then the expensing must be spread out over multiple years. This process is called "depreciating" and it can cause the eyes to roll backwards for business owners and some tax preparers as well.

There is a provision, however, that allows small businesses to expense these items in the year that the asset begins to be used (not the year it is purchased). The code section is 179 and you will hear accountants and tax preparers talk about "179ing it."

Currently this provision is limited to small businesses. The way that is done is by setting a phase out based on total purchases. Currently a business can "179" or expense up to $250,000 in purchases providing total assets purchased are not excessive. By the time total purchases reach $800,000 the maximum expensing allowed is reduced to zero.

Both Democrats and Republicans agree that this provision is good for a sputtering economy and are interested in raising those limits to reach more businesses. Currently the target levels are up to $500,000 in purchases expensed being phased out to zero when total purchases reach $2,000,000.

This is worth watching if you are a business owner. While passage is likely, it isn't the law until it becomes the law. We'll watch Congress to see what they do.