Viewpoints

Get While the Getting is Good: “Gifts” from Congress

Bruce Zicari

Originally Published In:
ROCHESTER BUSINESS JOURNAL
February 2008
Author: Bruce Zicari, CPA

Congress recently passed an economic stimulus package that received a lot of press for the rebates that will be given to individuals. But what has received a lot less attention with the possibility of delivering impacts significantly greater, are the tax-based incentives being given to small and medium sized businesses to make purchases or improvements.

In fact, there are two items of particular importance to businesses that provide for tax –based incentives (not a cash giveaway) for businesses to re-invest in their growth by purchasing new equipment in 2008 that in turn, will stimulate the economy.
 
For example, Section 179 of the tax code was changed to boost expensing of equipment, software, and new technology, among other items. Now, most small and some moderate sized businesses that purchase equipment will be able to take a full deduction for these in the year of purchase (up to $250,000) instead of depreciating the cost over several years. These significant tax advantages should stimulate small businesses to purchase now, which in turn, will have a trickle down effect on suppliers (and their employees and their families) as the supplier fulfills orders.  

There’s also a provision in the new Act similar to one we saw post 9-11, that allows for accelerated or “bonus” depreciation for certain types of property placed in service this year. Congress has allowed a first year depreciation deduction equivalent to 50% of the cost of any qualified purchases, combined with normal 1st year depreciation. This means that a business making an investment in new equipment this year to help their company, and in turn help a supplying company, will get a very nice reduction in their tax liabilities for 2008.  This rule also applies to leasehold improvements made by a landlord or the tenant to their facilities - they will be able to write off 50% of their qualified construction costs during 2008.

Finally, these depreciation deductions are allowed for both regular income tax and Alternative Minimum Tax (AMT) purposes.

There are no limits as to which types of businesses qualify as it relates to the bonus depreciation. However, Section 179 depreciation applies to businesses that invest less than $800,000 in qualified purchases during the tax year. There are limits in terms of the types of “property” that will meet requirements for accelerated expensing and depreciation, as well as for the maximum amount of deduction or depreciation that can be taken. Check with The Bonadio Group to determine the best ways to take advantage of this time sensitive opportunity.

So, how can business best take advantage of this?

The advice I’m giving to my clients is that 2008 may be the time to make that purchase they’ve been holding off, but to check with me first to make sure that they’re making a qualified purchase that won’t exceed Congress’ largesse.

I am very enthusiastic and optimistic that these business incentives will stimulate the economy. In fact, I think that while these incentives have received significantly less attention in the press, their impact on the economy will dwarf the impact of the taxpayer rebates.

For example, a taxpayer might receive hundreds of dollars that will very likely go to paying off bills or savings, rather than towards the purchase of a capital good. On the other hand, a business owner has hundreds of thousands of dollars of incentivized opportunity to make purchases that will improve their business by promoting growth and efficiency, while concurrently putting revenue into many different types of distribution channels

And to top it off? There’s some outstanding tax breaks available to those who act now.

Disclaimer: The Bonadio Group provides the information in Viewpoints for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles in Viewpoints are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided "as is," with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.