Small Business Expensing
For tax years 2003 - 2005, business taxpayers will be able to expense up
to $100,000 of qualified property under IRC § 179. The limit before JGTRRA
was $25,000 annually. After 2003, the $100,000 amount is indexed for inflation.
This provision expires for tax years after 2005. Qualified property is defined
as depreciable tangible personal property that is purchased for use in the active
conduct of a trade or business. This expensing option is phased out for taxpayers
with over $400,000 of depreciable tangible personal property, rather than $200,000
prior to JGTRRA. To maximize this new benefit, taxpayers should first expense,
in whole or in part, property with the longest depreciation periods. For example,
if an item of ten year MACRS property and an item of five year MACRS property
are placed in service, the expense allowance should first be taken on the ten
year property. The cost of all the property will then be recovered in the shortest
possible period of time.
Definition of Qualified Property Expanded
For the first time, JGTRAA permits taxpayers to expense under IRC § 179
off-the-shelf computer software programs purchased in 2003 - 2005. Under
prior law, off-the-shelf computer software programs were not characterized as
qualified property, and thus were required to be depreciated over a three-year
period.
Bonus Depreciation
Bonus depreciation jumps to fifty percent for property acquired after May 5,
2003 and before January 1, 2005. As with the previous thirty percent bonus depreciation,
taxpayers may elect out of use of the additional first year depreciation. This
bonus depreciation may be combined with the new increased expensing amount under
IRC § 179. However, bonus depreciation only may be taken on new equipment,
while the IRC § 179 expensing deduction may be taken on both new and used
property. Unlike IRC § 179 expensing, there is no phase-out of this benefit
based on income.
To conform to the enhanced bonus depreciation amount, JGTRRA raises the bonus
depreciation amount that may be taken with respect to the purchase of luxury
automobiles to $7,650 from 4,600.
Delay in Portion of Third Quarter Corporate Estimated Tax Payments
The twenty-five percent of the corporate estimated tax payments normally due
on September 15, 2003, is now required to be paid no later than October 1, 2003.
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