The IRS is planning to change tax laws to allow small businesses that use a van or truck to claim a higher exemption for their vehicles.
The Internal Revenue Service is prepared to raise the tax exemption allowed for depreciation on vans or light trucks used by small businesses up to $25,000 beginning in 2003, according to a ranking member of the U.S. Senate Committee on Small Business and Entrepreneurship. Currently, small business can claim no more than a $14,460 exemption for vehicles placed in service in 2000, under Section 280F of the tax code.
The IRS is also reportedly considering broadening Section 280F to include more types of trucks and vans used by small businesses.
The change in the tax code, expected to pass into law later this year, would be a windfall for small business owners such as florists and contractors, who use a van or truck daily to deliver or transport goods and products. For most businesses, the cost of maintaining trucks and vans far exceeds current depreciation deduction limits, and businesses are barred from claiming large amounts of vehicle expenses each year, say small business advocates.
Additionally, small businesses must wrestle with a current tax exemption with a long list of narrow requirements, forcing businesses to keep detailed records and calculations. Small business advocates are urging the IRS to adopt an exemption that is as simple and straightforward as possible.
“This section of the tax code is one of the most frequent complaints we get from small business owners,” said Craig Orfield, a spokesman for Senator Christopher Bond (R-MO), ranking member on the Committee on Small Business and Entrepreneurship. “They tell us they have to sit down with it and take extensive amounts of time to try to figure out whether they are making the right decision, taking the right exemption, filing the right form. For many, it’s impossible to figure out. Small business owners are between a rock and a hard place – you either avoid the exemption or you spend hard-earned money hiring a tax lawyer or a CPA to tell you what to do.”
Senator Bond, who has pushed for changing section 280F of the tax code, said the anticipated changes hold great potential to help small businesses struggling to survive the current economic downturn. A broad-based exemption that is easier to understand would also provide an incentive for business taxpayers to purchase new trucks and vans, said Bond.
“Our measuring stick is, can a small biz owner look at the tax code and know whether they’re in compliance or not, and not have to speak to a lawyer,” said Orfield.
The changes are expected to be approved later this year as part a joint process between the IRS and the U.S. Treasury Dept. On July 10, the Treasury Department and the IRS released the 2002-2003 Priorities for Tax Regulations and Other Administrative Guidance. The Priority Guidance Plan identifies the tax issues that the Treasury and the IRS will address through regulations, rulings, notices and other forms of guidance during the year ending June 30, 2003. The plan reflects the combined input of taxpayers, practitioners and industry groups.
“The Treasury and IRS are committed to making this happen. It’s just a technical matter to make it happen now,” said Orfield.
