Businesses Quick to Tap Tax Break

Last year, Congress increased the amount small businesses can write off on new equipment purchases from $25,000 to $100,000. The increased allowance, known in tax parlance as the Section 179 deduction and in the popular media as the SUV tax, also applies to information technology purchases.

This deduction appears to be having its desired effect and is serving as motivation for not only sport utility vehicle purchases, but also as an incentive to purchase technology-related equipment.

A recent survey of 1,001 firms conducted by the National Small Business Association and IBM Corp. reinforces that the benefits of the tax incentive aren’t lost on the majority of small businesses. According to the report, 69 percent of respondents have taken advantage or will take advantage of the revised Section 179 rule of the tax code to purchase computer technology ranging from desktop PCs to accounting software.

Asked about hardware purchases, 40 percent of respondents said they either have used or will use Section 179 to buy desktop PCs. Next in popularity were notebook PCs (27 percent), followed by printers (23 percent) and servers (18 percent).

Slightly less than half of businesses surveyed (49 percent) say they did or will use the tax break to buy software. Office applications led the pack with 30 percent, followed by financial/accounting software (21 percent), customer management software (8 percent) and supply chain (4 percent). “Other” software accounted for 11 percent of purchasing plans.

The tax change may also have an effect on how SMBs budget for new technology. Asked whether the tax act would make them more likely to lease or buy computer hardware and software, a whopping 90 percent indicated a preference to purchase.

Those responding to the IBM/NSBA survey (which was conducted from Feb. 24 to March 2) tend to be small businesses as 62 percent have between one and nine employees, 29 percent have between 10 and 49 employees, 5 percent have between 50 and 99 employees and 3 percent employed between 100 and 500 people.

The tax incentive is available only through 2005, so businesses have to decide quickly whether or not to spend while the spending’s good.

Dan Muse is executive editor of internet.com’s Small Business Channel and EarthWeb’s Networking & Communications Channel.