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Economic Help for Businesses

Nov 10, 2008 | Posted in Business, Knowledge Sharing, News

These difficult economic times are taking a toll on America’s small businesses. With a decrease in sales, loss of available financing and other hardships brought on by the down-turn in consumer purchasing, businesses are looking for ways to help their bottom lines. Earlier this year, Congress initiated two specific steps that can help businesses.

The Economic Stimulus Act of 2008 provides these incentives to businesses, which include a special 50-percent depreciation allowance for 2008 purchases and an increase in the small business expensing limitation for tax years beginning in 2008.

What does this mean to your business?

If you purchase and place into service qualifying property during your 2008 tax year, you are able to depreciate 50% of the original cost of your purchase. Qualifying property includes any property that would traditionally be depreciated over a period of 20 or fewer years, any off the shelf computer software, or any qualified leasehold property. You can extend your ability to place the property into service through 2009 if the recovery period is ten or more years.

Any purchased property that would traditionally be eligible for Code Sec. 179 expensing, can be treated as an expense, thereby allowing a business to deduct up to $250,000 of the purchase price, instead of depreciating the purchase over several years. There are limits to how much you can spend before the deduction is reduced. If a business operates at a loss in 2008, a deduction cannot be made; however the disallowed deduction can be carried forward to a non-loss year.

Bonus Depreciation
If you purchase and place into service qualifying property during your 2008 tax year, you are able to depreciate 50% of the original cost of your purchase. Qualifying property includes any property that would traditionally be depreciated over a period of 20 or fewer years, any off the shelf computer software, or any qualified leasehold property. You can extend your ability to place the property into service through 2009 if the recovery period is ten or more years.

Enhanced Expensing
If you purchase property eligible for Code Sec. 179 expensing, you are able to treat it as an expense and deduct up to $250,000 of the purchase price, instead of depreciating the purchase over several years.
What purchases are eligible under Code Sec. 179? Basically, any tangible personal property is included in section 179. This property must be actively used in the taxpayer’s business, it must be newly purchased, and it must be an item that can be depreciated.

Some examples of qualifying property are:

  • Computers
  • Gas storage tanks
  • Greenhouses
  • Machinery and equipment
  • Office equipment—copiers, typewriters, fax machines, etc
  • Office furniture—desks, chairs, file cabinets, book shelves, etc
  • Off-the-shelf computer software
  • Oil and gas well and drilling equipment
  • Printing presses
  • Signs
  • Sport Utility Vehicles (SUVs)
  • Storage facility (e.g., peanut, hay, potato or tobacco)
  • Store counters
  • Testing equipment
  • Vineyards

Why should a company take advantage of these savings?
Accelerated depreciation methods have always been an effective tool for writing-off assets that potentially, while not at their actual ‘end-of-life,’ could become functionally obsolete to a company. In such cases, those organizations qualifying for this economic stimulus incentive could find far greater tax shield effects over traditional, straight-line depreciation.

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