Jobs and Growth Tax Relief Reconciliation Act of 2003
Congress recently passed the Jobs and Growth Tax Relief Reconciliation Act of 2003, which is better known as the tax relief act of President Bush. The new law contains important changes for businesses, including tax breaks designed to encourage immediate investments. There are two key temporary breaks that all business owners should take note of:
- Small companies can expense up to $100,000 in new equipment investments through 2005.
- Businesses can depreciate more of their assets sooner through 2004.
In addition to these two key factors, there are additional elements that are designed to assist businesses and, theoretically, provide a boost to the economy.
Major Exemptions to Depreciation Requirements
The Act contains new provisions that provide major relief to small businesses on the issue of depreciation. Small businesses are now allowed to immediately expense (rather than depreciate over several years) a certain amount of the cost of tangible depreciable personal property purchased and placed in service during the tax year in an active trade or business. Under the new law, all of the following expensing changes are effective for tax years beginning after 2002 and before 2006:
- The maximum annual expensing amount is $100,000, an increase of $75,000.
- Computer software is now eligible for expensing.
- Taxpayer revocation of expensing elections will no longer require IRS consent.
Obviously, the $75,000 increase in the annual expensing limit provides incredible tax relief to small businesses. In essence, this new provision provides a major incentive to invest in your small business.
Reduced Income Tax Rates
The Act also includes individual tax rate changes that will help small businesses, including an immediate reduction of the marginal tax brackets paid by all but the lowest earners. Since many small businesses are either sole proprietors or pass through entities such as "S" corporations or limited liability companies, the tax rate reduction is significant. Starting in 2003, the new rates for 2003 above 15% are 25%, 28%, 33%, and 35% (previously rates for 2003 above 15% were 27%, 30%, 35%, and 38.6%).
Reduced Corporate Tax Rate
Although not as sweeping as the income tax rate reductions, the Act does provide some relief for corporations. The accumulated earnings tax and personal holding company tax rates have been slashed from 38.6% to 15%. Unfortunately, this change will only last through the 2008 tax year.