Will a Change to Section 179 Deductions Help Small Businesses?

What does the tax year hold for small businesses? Startups and small businesses are often touted as the backbone of an improving economy. Yet are there corresponding tax breaks offered to small business entrepreneurs?

New federal legislation might offer some benefits to small and mid-sized businesses with assets subject to a depreciation schedule. Section 179 of the Internal Revenue Code governs how some of the costs of business equipment can be deducted each year through a depreciation schedule. The new law will remove the schedule and allow businesses to write off the entire price of qualifying equipment in a single tax year, up to a cap of $500,000.

As a law firm that focuses on tax controversies, we have countless examples of disputes arising over complicated sections of tax code, including capital expenditures. The new proposal will certainly be simpler and require less paperwork. It may even stimulate more capital spending. Less paperwork may even reduce the risk of an IRS audit over this particular area of law.

However, there are many other types of deductions authorized by federal tax law, and the IRS’ computer scoring may produce red flags on a return containing deductions that are not adequately documented. In addition, payroll withholdings are another area that can raise problems for small business owners, many of whom might not have the financial reserves or manpower to put their business on hold and correspond with the IRS. To avoid the possibility of an IRS audit or tax controversy sidelining your business, consult with a tax attorney after your first IRS correspondence.

Source: LifeHealthPro, “Break for small business that might do some good,” Barry Ritholtz, Jan. 4, 2016

Tags: Blog, IRS