The recent economic stimulus package signed by President Bush has been widely discussed. While many are aware of the payments to individual taxpayers, another part of the bill that was signed targets businesses. The stimulus package could prove to be highly beneficial to companies considering capital equipment for their operations.
An analysis of the economic stimulus package by the Manufacturers Alliance notes that the bill, which targets small businesses, allows for an accelerated deduction for the first year on capital equipment expenditures.
In an alert sent by MAPI, Tracy Hollingsworth, VP, Finance and Director, Tax Councils, writes the following:
"The temporary cost recovery provisions are aimed at encouraging small businesses to expand and create new jobs. Taxpayers that place less than $800,000 of equipment into service in 2008 will be allowed to expense or immediately deduct as much as $250,000 (up from $128,000). The stimulus measure also increases so called "bonus" depreciation from 20 percent to 50 percent for new tangible property and software with a recovery period of 20 years or less whose original use commences with the taxpayer. With some exceptions, the property must be placed in service in 2008."
Hollingsworth notes that this policy allows small businesses to "front load the deduction this year," while taking smaller deductions over the ensuing years.
The result would be a lower tax paid by smaller businesses this year. And, with a cap of $800,000, for those companies considering making capital investments in equipment, now may be the best time to make that purchase.