New Tax Law Turns Small Biz Loophole Into A Crater
by Wayne M. Davies
In case you were too busy last year to notice, our beloved politicians passed
another tax bill designed to put more dollars in your
President Bush signed the new tax law on May 28, 2003 -- and
there is truly something for everyone in this package, a veritable
smorgasbord of tax savings.
If you are a Small Business Owner or
Self-Employed Person, there's one especially lucrative tax break.
actually an expansion of a tax rule that's been on the books for years. Known
as the Section 179 deduction, the new legislation takes this loophole and
turns it into a deduction big enough to drive a fleet of
The Section 179 deduction enables the Small Business
Owner to deduct 100% of the cost of most business equipment, in lieu of
depreciation over several years.
What's so great about that?
about it like this: I've got a dollar and I'd like to give it to you. You
have two choices -- I give it to you now, or I give it to you 5 years from
Which do you prefer?
Obviously, you'd rather have it now,
And why is that?
Because of what you learned way back in
Finance 101: something your banker calls "the time value of
I'll spare you a boring textbook definition. Instead, let's
just assume we agree on this simple point: Is a dollar worth more today or 6
years from today?
It's worth more today.
And that's why the
Section 179 deduction is so valuable.
Let's use an example to
bring all this financial theory into reality.
You buy $5,000 worth of
office equipment in 2003. Under normal depreciation rules, you wouldn't get
to take a deduction for $5,000 in 2003. Instead, you'd write off the
$5,000 over 6 years -- part in 2003, part in 2004, etc.
If you're in
the 35% tax bracket, you get your $1,750 in tax savings over 6 years. Yawn.
That's a long time!
You'd get your deduction, and the resulting tax
savings, but you'd have to wait 6 years to realize all the
Section 179 says that if you meet certain requirements, you
can deduct the full $5,000 in 2003. You reduce your taxes by $1,750 in Year
So let me repeat my rhetorical question: Uncle Sam has $1,750
he'd like to give you. When do you want it? All at once, or spread out over 6
That's the beauty of Section 179.
But you have to meet
certain requirements to benefit from Section 179. One requirement concerns
the total amount of equipment you can deduct rather than depreciate. In
2009, the amount was $24,000. And for 2003, the amount was originally set at
Then Congress and the President passed the new tax bill in
May 2003 that raised that amount to a whopping $100,000.
depreciation? Well, you can pretty much kiss it good-bye now. If your
business buys more than $100,000 of equipment in a single year, it ain't
so "small" any more! So this new law should cover all small
Be sure to consult with your tax professional to get the
scoop on all the Section 179 rules.
A very nice deduction just got
expanded to monstrous proportions! Take advantage of it.
Cash Flow Management
Cash. Most people want more. When running a small
business it's particularly important to monitor how cash is coming in and
how much cash is going out.
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Financing Your Home Business
So, you have a great idea for a business and, more importantly,
the know-how to bring it into creation. The only thing you're
missing is the cold hard cash to get started. What are your
options? Fortunately, there
are a number of sources of finance for the fledgling small business
entrepreneur, at least one of which may be right for you.
Financial Intelligence - Do You Have It?
The rich and successful stand
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school but rather something that is acquired.
Copyright 2004 Wayne M. Davies Inc.
Wayne M. Davies is author of the best-selling ebook, "The Tax Reduction
Toolkit: 29 Little-Known Legal Loopholes That Will Reduce Your Taxes By
Thousands" (For Small Business Owners and Self-Employed People Only!) http://www.YouSaveOnTaxes.com/toolkit
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