Jobs and Growth Tax Relief Reconciliation Act of 2003

On May 28, President Bush signed into law the Jobs and Growth Tax Relief Reconciliation Act of 2003.

While the majority of the tax reductions and benefits contained in the Act are aimed at individual taxpayers, there are a number of key provisions that can have a very favorable impact on smaller business owners (like coin/card-op laundries). The key provisions of the Act include:

#1) Increased Bonus Depreciation Deductions: 50% bonus first-year depreciation is available on new equipment. Laundry owners can take an up-front tax deduction for 50% of the cost of new laundry equipment bought after May 5, 2003 and before January 1, 2005. The rest of the cost is recovered by depreciation. The supplants the old 30% bonus write-off enacted in 2002, although businesses can elect to pursue the smaller bonus if they want to. All laundry equipment is eligible. Also, leasehold improvements made to the interior of commercial realty are also eligible if it can be depreciated over 20 years or less. But the 50% break is not applicable to buildings and other real estate. There is no taxable income limitation or investment limitation on the bonus allowance.

#2) Increased Small Business Expensing: For 2003 through 2005, commercial laundry operators that put less than $400,000 of depreciable assets in use in a year can deduct up to $100,000 of the cost in lieu of depreciation. This new law increases the annual expense limit (Section 179) from $25,000 to $100,000. Availability of this expense deduction will phase out for taxpayers who place in service over $400,000 of qualified property in that year (hence the reference to “small business”). Laundry equipment placed in service in 2003 would qualify as well as off-the-shelf computer software, previously excluded, is now qualified property.

Likewise these provisions can be used together to provide a real tax holiday. For example: A coin/card laundry owner purchases $200,000 of new laundry equipment for his ten year old store and the equipment is installed prior to December 31, 2003. First this taxpayer can claim up to $100,000 as a Section 179 expense deduction assuming he has at least $100,000 of taxable income from his laundry in 2003. Bonus depreciation is $50,000 ($200,000-$100,000) X 50%) and regular first year depreciation deductions are computed on the remaining $50,000 ($200,000-$100,000-$50,000).

There has never been a better time to purchase new equipment for your coin/card laundry. The benefits of new equipment coupled with the new tax considerations make the decision to buy a ‘no brainer’. Please consult your tax advisor for particular tax situations.