Business income tax deductions for 2013, unless Congress decides to extend the current tax incentives, Revenue Ruling 179 + 100%/50% bonus depreciations, are both scheduled to expire on December 31, 2012. This means that all equipment purchases in 2013 will now be subjected to the Modified Accelerated Cost Recovery System (MACRS) established in 1986 for capital recovery and deprecation purposes.
The uncertainty is due to the fact that this is an election year. This year we do not expect any focus on extending these tax incentives as this conversation is related to tax increase to small business owners. So the question is how will it affect the equipment makers next year? What corresponding affects it will have to commercial equipment financing.
Tax increase for businesses is a growth burden that can rather be put on hold causing the economy to stagnate. If depreciation benefits are limited to MACRS in 2013 – it will cause some businesses to look for a better way to invest due to a reduced amount of deductions compare to investing in heavy expensive, innovative equipment & machinery to spruce up economic growth. With very little tax incentives many will find way to not invest, and grow.
Businesses who took advantage of the 100% bonus deduction in 2011 and the 50% from 2012 have very little incentive and depreciation left for 2013 unless you are forced to invest in equipment.
The capital leases, or the so-called Dollar Buyout Leases the last few years, gained in popularity because the bonus depreciation making it affordable to acquire expensive machinery and equipment.
Bonus depreciation for 2013 still is not off-the-table and your only option for more deductions. Business owners can still determine how much of the tax benefits in the form of TRUE LEASE or TAX LEASE where payment is deducted on a monthly basis as opposed to using MACRS table for asset cost recovery.
This is all dependent on what will the new president and Congress do after the election. Regardless of who wins the presidential election Congress have indicated that they will not be extending the Payroll tax cuts – another blow to small business owners.
We are not sure where the Congress is leaning towards not extending Bonus depreciation section 179. One way or another — next year promises to be different for commercial equipment leasing and small business investments. A high tax for small business owners equals low profit margin, and equal low economic growth. Wish everyone well for 2013!