1. Business expansion
The reduction in interest rates will likely encourage many businesses to commence or resume expansion plans and strategies, which could lead to increased investments in capital, inventory and hiring.
Capital expenditures: With lower borrowing costs, businesses may accelerate their capital expenditures. In this regard, it’s crucial to consider the implications of bonus depreciation and how it interacts with the federal tax rules.
Bonus depreciation allows businesses to immediately deduct a significant portion of the cost of eligible property, which can provide substantial tax savings. However, businesses must also look at how potential future tax rate changes, as well as scheduled changes to the expensing rules themselves, could affect how they time capital expenditures and larger projects.
Business interest limitations: The interest rate cut may lead to increased borrowing. However, businesses must be aware of the limitations under section 163(j), which caps the amount of business interest expense that can be deducted for taxes. This limitation, which recently became more stringent, can affect overall tax liability, especially in an environment of increased borrowing.
Hiring: The availability of funds for hiring can lead to discussions around tax credits such as the Work Opportunity Tax Credit (WOTC). Additionally, expanding into new markets can raise state tax considerations, including apportionment and nexus issues, and potential opportunities around jurisdictional-specific incentives and credits.