On December 9, 2010, Senate Majority Leader Harry Reid (D-NV) introduced the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act 2010 (the “Bill”). Based on a framework agreed to by President Obama and Congressional Republicans on December 6, 2010, the Bill amends the House’s H.R. 4853, the Middle Class Tax Relief Act of 2010. It focuses on the extension of Bush-era tax rates set to expire at the end of this year and a number of economic stimulus measures. Among its provisions, the Bill would allow businesses to currently expense as “bonus depreciation” 100 percent of the cost of certain property acquired after September 8, 2010 but before 2012 and 50 percent of the cost of certain property acquired in 2012. The White House has called this “the largest temporary investment incentive in American history.”
Generally, when arriving at their taxable income, businesses may immediately deduct their current expenses (e.g., the cost of labor) but must capitalize and deduct over time, through depreciation or amortization deductions, their capital expenses (e.g., investments in equipment). Throughout the history of the Internal Revenue Code, Congress has enacted both permanent and temporary economic stimulus measures allowing businesses to accelerate the timing of their depreciation and amortization deductions, with the intention of reducing their current taxable income and stimulating their current investment in capital expenditures (at the potential expense, of course, of increased taxable income and reduced investment in the future).
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