Small and mid-sized business owners have 29 days left to take advantage of the $152 billion Economic Stimulus Act of 2008 that President George W. Bush signed into law in February. The stimulus package gives new tax breaks for the purchase or leasing of new equipment via the enhanced Section 179 tax code as long as the equipment has been placed in service after Dec. 31, 2007 and before Jan. 1, 2009.

If you've been thinking about buying or leasing new equipment for your business, this is the year to do it, due to changes in Section 179 made by the Economic Stimulus Act of 2008.

Section 179 allows businesses to expense (i.e. deduct from their gross income currently as opposed to taking depreciation deductions over time), up to a certain limit, the purchase price of qualifying equipment purchased or financed during that tax year, Section179.org explains. The site also lists materials that would generally qualify for the deduction, such as:

• Property attached to the business but not part of the structure (i.e. a printing press or large manufacturing tools);
• Machines purchased for business use;
• Tangible personal property used in business;
• Business vehicles with a gross weight in excess of 6,000 lbs.;
• Computers and software; and
• Office furniture/equipment.

Under the Economic Stimulus Act, the equipment investment limit is increased from $510,000 to $800,000 — meaning all businesses that purchase or finance less than $800,000 in business equipment should qualify for the Section 179 deduction. Also, the $128,000 expensing limit is increased to $250,000. (Source: Trade and Industry Development)

Businesses choosing to lease rather than buy equipment could take advantage of the Section 179 deduction by leveraging a non-tax capital lease and writing off $250,000 through the Section 179 deduction. "The amount you save in taxes can actually exceed the payments," Section179.org adds.

To take advantage of these increases, companies must act before the year ends as these figures will revert to their previous level for 2009 and 2010.

As for the depreciation bonus, the stimulus program allows companies to depreciate 50 percent of the equipment's cost in the first year, plus the remaining basis of the equipment that would be depreciable. Companies can receive a higher tax break this year and less the years following, which means future tax bills would be higher.

"You're still only eligible to depreciate 100 percent of the cost of the equipment, so in the other years you'll likely be able to depreciate less because you've taken this depreciation upfront," Christian Klein, vice president of government affairs and Washington counsel for Associated Equipment Distributors, explains to Modern Metals. "It's not an additional 50 percent of the cost of the equipment that depreciates, so you can't depreciate 150 percent of the cost. You're still only eligible to depreciate 100 percent, you can just do more of it more quickly in the first year. And that helps if you're having a good year this year. It can reduce your 2008 tax liability."

The purpose of these increases and bonus first-year depreciation deductions is to get people off the fence on whether or not to purchase new equipment and invest in their companies.

"The tax incentives might encourage companies to go ahead with projects they've sidelined or to speed up timelines on existing projects to get them in under the deadline," Hal Vandiver, executive vice president of the Material Handling Industry of America, tells Modern Materials Handling.

"If you want to try to combine the two, the way you would do that is buy up to $800,000 worth of stuff, take the Section 179 expensing for the first $250,000 and use the depreciation bonus for the remaining $550,000," Klein adds.

For additional information on the depreciation bonus and a tax savings calculator, visit Section179.org and click on the deduction calculator or go to DepreciationBonus.org.

Related

Tax Tips for Entrepreneurs

5 Tax Tips to Save the New Year

Resources

The Section 179 Deduction
Section179.org

Tax and Incentive Strategies for Manufacturing Operations
by Suzanne Davis and Jerry Hammel
Trade and Industry Development, September/October 2008

Taking Advantage of Depreciation
by John Loos
Modern Metals

Economic Stimulus Act Offers Tax Deductions on Equipment Purchases
by Corinne Kator
Modern Materials Handling, April 15, 2008

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