The Economic Stimulus Act of 2008 was developed to boost the economy. Not only does the act provide for additional refund checks on personal income tax, it also contains significant provisions to help small businesses. But unlike the personal income tax stimulus, the small business provisions require that you act now, before December 31, 2008, to take advantage of the benefits. Let’s take a closer look.

Expense Versus Depreciation
Normally, when a business acquires property, such as automobiles, computer equipment, real estate, and computer software, the value of that property cannot be expensed immediately, but must be expensed (depreciated) over a period of years. Section 179 of the IRS Code provides that, instead of depreciating, a business with a small amount of annual property purchases may choose to expense the cost. For taxable years beginning in 2008, the Economic Stimulus Act increased the IRS Section 179 expense limit, allowing more property to be currently expensed.

By taking advantage of this provision you can reduce the net profit reported to the IRS, saving on income taxes while acquiring property to help you run your business more efficiently.

Help For Your Bottom Line
Here’s how it works: For tax years beginning in 2008, you can directly expense up to $250,000 for property placed in service that year. This is a 95 percent increase from the previous limitation of $128,000. Keep in mind, though, that the total equipment purchases for the year cannot exceed $800,000, or the amount you can directly expense is reduced by $1.00 for every dollar you spend over $800,000.

Further Incentives
A separate provision provides an additional 50 percent special depreciation for certain types of property. So if you do spend over $800,000, you can take a 50 percent depreciation for the amount above that which you can directly expense. For example, if your company purchased a single piece of property at a cost of $450,000, $250,000 of the cost could be immediately expensed (under Section 179) and the remaining $200,000 would qualify for the 50 percent special depreciation.

The types of property that qualify for the 50 percent special depreciation allowance are: section 168 property with a recovery period of 20 years or less, off-the-shelf computer software, water utility property, and qualified leasehold improvement property.

You will be able to deduct larger depreciation amounts on vehicles this year as well. For passenger vehicles, the maximum amount you can depreciate is $10,960, up $8,000 from the previous maximum of $2,960. For trucks and vans, the new limit is $11,160.

Act Now
The Section 179 tax break provides a great opportunity to acquire property to help run your business better. If you need to upgrade your hardware to take advantage of the latest software releases, now would be a good time to do it. Remember, the incentive is for the calendar year, so regardless of your fiscal year, the equipment must be purchased by December 31, 2008 to get the tax break on your 2008 tax return. We would be happy to help you evaluate your system needs, please give us a call.

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