WHITE PAPER INTRODUCTION

President George W. Bush signed into law the Jobs and Growth Tax Relief Reconciliation Act of 2003 on May 28, 2003. Most people are aware of the capital gains and dividend tax rate reductions that are good news for investors, but what is less known is that businesses were not left out. The new law also contains several provisions that make buying new technology less taxing—literally.

The Jobs and Growth Tax Relief Reconciliation Act of 2003 quadruples the amount of new equipment, including IT products and off-the-shelf software, businesses can expense from $25,000 to $100,000 per year. In addition, businesses can deduct another 50 percent in new equipment depreciation, up from the previous 30 percent.

So what does this tax cut mean to businesses? In effect through 2005, Section 179 expensing is retroactive to purchases made on or after January 1, 2003. Any business that spends less than $400,000 in new equipment each year qualifies for a tax deduction of up to $100,000. The previous law allowed for $25,000 in expenses with a phase-out cap of $200,000 on expenditures. The law, which covers computer equipment, office furniture and heavy SUVs or trucks, now allows businesses to expense off-the-shelf software. The previous law didn't allow expensing of off-the-shelf software. The additional 50 percent in immediate deductions is called a "bonus 50 percent depreciation." In tax terms, depreciation is the cost of using an asset and it is considered an expense. Typically, businesses write off or depreciate assets over five- to seven-years. The new bonus depreciation allows businesses to immediately expense their equipment purchases by 50 percent in the first year they purchase the asset.

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