Economic Stimulus Package Encourages Businesses to Invest
Everybody got their $600 tax rebate from Uncle Sam recently as
part of the Economic Stimulus Act, but there’s more to the act than some gas
money. For businesses, there are incentives to invest that few companies
know about.
For example, the Economic
Stimulus Act allows an additional first-year depreciation of 50% percent of the
purchase cost instead of the usual 20%. This depreciation bonus applies
tangible personal property (stuff with a tax life of 20 years or less)
purchases. So long as you buy the equipment and get it into service before
December 31, 2008, this will cut your 2008 tax bill.
Another set of goodies deals
with the expensing limits in Section 179 of the Internal Revenue Code. The
Economic Stimulus Act nearly doubles the Section 179 expensing limit to
US$250,000 from US$128,000. Also, this higher expensing limit can be
combined with the depreciation bonus in the Act. And new and used
equipment is eligible for expensing.
So, let’s suppose that your firm
needs to upgrade its computers and buy some software and the price tag is
$500,000. Under the old system, you could expense $128,000, leaving
$372,000. Then, 20% of that would come under depreciation, knocking off
$74,000, and just under $300,000 would be left to depreciate in the coming
years.
Compare that to the company’s
tax return for 2008 which would show $250,000 of the $500,000 as expenses.
Half of the remaining $250,000 would be depreciated ($125,000) in the first
year. The remaining $125,000 would be depreciated over the next few years
according to various schedules depending on the kind of equipment purchased –
for computers and software, it’s a three-year window.
There’s just one catch – you
have to act now.
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