2003 Fall/Winter Volume No. 2

Small Businesses get Big Tax Breaks

When President Bush signed the Jobs and Growth Tax Relief Reconciliation Act of 2003 into law on May 23rd of this year, it included some tax incentives for small businesses that can help you pay fewer tax dollars in 2003. However, as usual, making sense of new tax laws is no easy matter.

The idea behind many of the tax incentives was to reinvigorate the economy by getting small businesses investing in new equipment. While you'll want to get all the details from your accountant, there are some important new breaks you should know about since some of the benefits are retroactive to the beginning of 2003 and some of the breaks may be temporary.

If you do take advantage of the new laws it can mean extra cash for your business now.

One of the most important savings for portable restroom operations is the change in the Section 179 Depreciation Limits.

Basically, Section 179 allows you to write off new purchases for your business such as trucks, toilets, sinks, tanks and office equipment without having to expense them over several years. Formerly, up to $25,000 of these assets placed in service the year of purchase could be written off. Under the new law you can write off up to $100,000. Now, remember the key word here is "new purchases", the rules for "used equipment" are different.

The new rules provide a 400% increase in the amount that can be written off in one year. Small operators can take advantage of the new law if this is the year to buy a new truck or invest in a large fleet of units.

Formerly, the Section 179 deduction was phased out as equipment purchases exceeded $200,000. The new law also helps larger operators by raising that level to $400,000.

There are also some important changes for businesses that prefer to take their depreciation allowance over the useful life of their equipment. New changes in the tax law, Section 168, allow you to do both, that is, get a bonus write off this year, but also continue expensing the equipment in years to come.

The new ruling for 2002, Section 168 (k)(1), allowed you to take a 30% bonus deduction the first year and then spread the rest out over the life of the equipment if the purchases took place after September 10, 2001, and the equipment is put into service by January 1, 2005. In other words, if you buy a truck for $60,000, you can write off $15,000 (30%) this year and use $45,000 to expense in the years ahead.

To make matters even more confusing a new revision for 2003, Section 168 (k)(4), gives you a 50% bonus deduction. That means you now have a choice of taking all of the deduction the first year, taking 30%, or taking 50%.

So, on that $60,000 truck you may now decide whether to expense it evenly over the useful life of the vehicle, write off $18,000 (30%), write off $30,000 (50%), or write off the whole thing now. The choice is yours. These new limits apply to both corporate entities and self-employed individuals.

What you decide to do will depend on many factors including how fast your business is growing, how long you plan to own your business, and how much new equipment you plan to buy. To learn more you can get IRS Pub 946, How to Depreciate Property. Download it free in pdf version at www.irs.gov.

PolyJohn Depreciation Examples

Depreciation Method:
straight line method over 5 years.
PJN3 units (20 units @ 450)

Depreciation Method:
declining balance method over 5 years.
PJN3 units (20 units @ 450)

Depreciation Method:
Sum-of-the-years digits method over 5 years.
PJN3 units (20 units @ 450)

Acquire Date

Depr. Method

Life of Asset (yrs)

Original Cost

Depr.Exp Year 1

Depr.Exp Year 2

Depr.Exp Year 3

Depr.Exp Year 4

Depr.Exp Year 5

Book Value After Year 5

The above examples illustrate three common methods of depreciation used by companies.
The new rules provide a 400% increase in the amount that can be written off in one year. For example "in year 1, instead of expensing only $1,800 via the straight line method, you can claim $1,800 times 400% or $7,200" "in the first year (the bonus!). This increases your expense, and decreases your tax liability."

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