Small business tax breaks are expected to shrink significantly due to government regulative changes in 2012. The change brings a strong emphasis to the importance of year-end tax planning from small business owners.
Most notable are two generous breaks receiving large cuts:
- The Section 179 deduction
- The bonus depreciation deduction.
Many people have remained weary of government scale-backs for tax deductions, some even in support of adding additional breaks in 2012, as the United States economy continues to be stifled under the long mercy of adverse circumstances.
Section 179 allows for up-front deductions of equipment, rather than allowing depreciation, for up to $500,000. In 2012, the allowable deductions will drop 75% to $125,000 and another 80% in 2013, reaching an 11-year low of $25,000. Further deductions may be taken for amounts that exceed those allowed under Section 179 through bonus depreciation. The 2011 maximum allowance for bonus depreciation is $150,000 but will drop to $75,000, beginning a similar decline to Section 179 in 2012. More information on these deductions can be learned from IRS publication 946, How to Depreciate Property.
Both provisions were created by the federal government for the purpose of easing expansion of small businesses by allowing them to create more jobs. Additionally, the structure of both provisions allows large deductions for the purchase of equipment, which is what is being reduced for 2012. Still, financial experts advise business owners to avoid impulse purchases of equipment that is not a necessity to the current state of their operations. As reported by the Kansas City Star, changes to tax laws should not be the driving decision for business purchases. In other words, even with a greater deduction, unnecessary buys are still a waste of money. However, it may make sense to go ahead and proceed with those long debated purchases, such as updating technology, now rather than in 2012. Be forewarned that the major stipulation among these changes requires that any equipment claimed as a deduction for a 2011 return must be up and running by December 31, 2011. Purchases of upgrades and other equipment that are made in 2011, but not delivered or installed until 2012, will qualify only under the 2012 tax laws. Financing equipment in 2011 is acceptable, though.
The tightening of financial regulations for 2012 appears to be somewhat of a lobbyist movement. As small and medium business owners voice opinions for equal taxation on large corporations others wish to have the burdens simply relieved. Although, some claim further tax cuts would be crippling to the United States economy and, instead, the government should enforce stronger taxes among those who earn over $10-million per year, such as corporate CEOs.
The opinions expressed by The Ledger are most sensible. Business owners, small or large, do not simply create jobs based on government mandate. Jobs are created as demand increases; otherwise, a minimal personnel will be employed to maintain efficiency. Unfortunately there is a much smaller pool of taxable income from small businesses. Similar taxation on large corporations would would provide a great deal of relief for federal government programs and can later encourage an inflating job market.