NEW YORK — A notable piece of small business news on Capitol Hill this year isn't about a bill — it's about a tax proposal that could lift some of the uncertainty owners have been complaining about.
Under a proposal announced last week by House Ways and Means Committee Chairman Dave Camp, R-Mich., a popular tax deduction for equipment purchases would become permanent and be set at $250,000, aside from annual adjustments for inflation. Known as the Section 179 deduction, it's scheduled to drop to $25,000 next year after having been at $500,000 from 2010 through 2013.
If the proposal becomes law, it could give owners some predictability — something they've been clamoring for, given the large list of other uncertainties they've been sacked with such as health care, minimum wage and the economy. The deduction has fluctuated in recent years and has made it difficult for small businesses to plan.
Not knowing what the deduction will be forces business owners to play a sort of roulette — do they buy a drill press or an SUV before the end of the year and take advantage of the current deduction, or wait to see what the new year brings?
There are ramifications for the broader economy that go beyond the boost from spending on equipment. If small business owners have a better idea of how much money they might save on their taxes, they might feel more secure and then expand and hire. Small businesses account for more than 99 percent of U.S. companies, and they employ about half the country's workforce, or about 60 million people.
One of the greatest sources of uncertainty about the deduction is the fact that Congress has been erratic in setting the amount of the deduction and sometimes has made changes retroactively. In January, Congress gave final approval to a bill that boosted the 2013 deduction to $500,000 from a planned $25,000 — but many owners had already made purchases in 2012 expecting a smaller deduction in the coming year.
The deduction, named after a section of the federal tax law, allows small businesses to deduct up front the costs of equipment such as vehicles, manufacturing machines, furniture and computers. The deduction is important and popular because it allows small businesses to get a tax savings on the entire cost of equipment in the year it was purchased. Without it, they would have to depreciate the costs over a period of years, which varies according to the type of equipment.
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