Dear Dan: Forget the talk about recession. My business is doing fine, and I plan to acquire new equipment this year. Does the new economic stimulus plan offer any incentives? — Big Spender
Dear Big Spender: It’s an election year, and with the U.S. economy in trouble, lawmakers in Washington are in a generous mood. With a few quick strokes of the pen, they’ve launched two new small business tax benefits that could total $45 billion by next year. So what are these powerful new tax breaks and how can you put them to use?
First off, the lawmakers have given a giant boost to the amounts that smaller businesses can “expense” – that’s tax-speak for new equipment costs you are allowed to write-off immediately, as opposed to depreciate in smaller chunks over a period of years based on the useful life of the property.
The immediate write-off is much more valuable since it puts ready cash back into your business bank account now, and not years from now. There are limits, however, that prevent a small business from showing an actual tax loss.
But this is a big reason to buy those new PCs, computer servers, software or machines you’ve been thinking about. For growth- and expansion-minded business owners, the incentives for making new equipment purchases in 2008 are hard to pass up.
This particular provision is known as the Section 179 deduction for qualifying business property, and it works like this: Under prior law, says Steve Kunkel, a CPA with CBIZ Accounting and Tax Services in Los Angeles, businesses with taxable income could expense up to $128,000, if total eligible assets placed into service during the year did not exceed $510,000.
The economic stimulus bill nearly doubles the immediate write-off to $250,000, and raises the cap on how much equipment can be purchased to enjoy the write-off to $800,000. For example, under the old law, if you bought $250,000 in equipment, you’d have been able to take the $128,000 Section 179 deduction, plus 14 percent of the difference ($17,080) for a total first-year deduction of $145,080.
Now you can deduct, or “expense,” the entire $250,000 immediately. And if you spend more than that, you can get a 50 percent first-year “bonus depreciation” on the remaining amount, PLUS 14 percent on amounts still left over – a triple-threat deduction. •
Daniel Kehrer can be reached at
editor@business.com.
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