Business Band-Aid

Stocking Up

Another helpful change for small-business owners was an increase in the Section 179 expensing provision for equipment purchases. As a result of the '97 law, entrepreneurs can now take a larger deduction for the equipment they purchase. For property placed in serv--ice during 2000, the '97 law allows for a deduction of up to $20,000 in purchases of qualifying property. The expensing limit is scheduled to increase to $24,000 for 2001 and 2002, and to $25,000 for 2003.

This provision was especially beneficial for Cheryl Watkins Snead, president, founder and CEO of Banneker Industries in Lincoln, Rhode Island. Founded in September 1991, the company provides supply chain management services to manufacturers. Watkins-Snead, 41, says she took advantage of the provision to purchase material- handling equipment (like forklifts).

The expensing provision also benefited Terri Bowersock, owner of Terri's Consign & Design Furnishings in Mesa, Arizona. Her furniture business has grown into a franchised and corporate-owned chain with 16 superstores nationwide and sales of $26 million in 1999. Sales are expected to hit $30 million in 2000. Bowersock, 43, says she took advantage of the provision to purchase a few additional trucks.

Although the changes in the expensing provision were helpful, additional work needs to be done to improve the existing limit, says Horton. Under the expensing provision, if the total cost of qualifying property placed in service during a taxable year exceeds $200,000, the $20,000 limit is reduced dollar for dollar by the cost of qualifying property exceeding $200,000. For small manufacturing companies that spend hundreds of thousands of dollars on equipment annually, the $200,000 limit is a problem, Horton says, because it effectively scales back the deduction. The existing limit should be increased at least to take into account the rate of inflation.

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This article was originally published in the May 2000 print edition of Entrepreneur with the headline: Business Band-Aid.

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