Another key change potentially coming in 2017 is to the write off of “Capital Investments”. Think about this as §179 deductions on steroids.
Currently under tax law, businesses can accelerate their depreciation by writing off up to $500,000 in the year of purchase. The problem, for larger businesses is that it phases out if you put more than $2,000,000 in assets into service in the year.
So for smaller businesses which can already take full advantage of §179 there is going to be a negative trade off coming. You see, today, if the business needed new assets we would encourage the Company to borrow the funds from either the seller or the bank to buy the equipment. Then we would take the full write off and also get to deduct the interest expense in the following years.
This may be going away as part of the 2017 tax restructuring.
If businesses want to take the full write-off of unlimited asset purchases but use debt, interest may no longer be deductible. This could be a big set back for small businesses as most prefer to match long lived asset purchases with long term debt. It has, until now, made more sense.
Congress may carve out an exception but I do not see an easy work around. It may be they only deny deductions for term loans but that doesn’t seem workable.
There would also be the potential headache of defining a capital asset. Obviously a computer qualifies but what about real estate? Expect to see some restrictions on what qualifies or perhaps on what “businesses” can take advantage of this potential change.
We have a monthly series that we hold here in downtown Vancouver, WA called the Currie & McLain Lunch and Learn. This months topic is on the potential tax law changes and how to start planning for it. I will post a copy of the Powerpoint after the presentation along with thoughts and the Q&A which come out of the conversation.
In the meantime, consider having a conversation with your tax and accounting professional about what might be coming as part of the new tax changes for 2017. Make no mistake, the changes are coming. If you are not currently working with an accounting professional or are interested in a second opinion, feel free to contact me for a free consultation.