A Good Time to Buy?

The Economic Stimulus Act of 2008 may provide sound reasons for moving planned purchases of major equipment into 2008

If you own a business, there’s much more to the U.S. government’s economic stimulus program than the check you received in the mail last spring or summer.

The Economic Stimulus Act of 2008 included two provisions that could make it wise to purchase major equipment before the year is up. More to the point, if you need to replace a vehicle or expand or upgrade your fleet, there may be substantial tax advantages to doing so in 2008.

That’s because the Economic Stimulus Act includes special expensing and bonus depreciation provisions that let you write off more of the cost of the equipment for immediate tax savings against your 2008 tax liability.

Bigger than before

The last time the government did something like this was under the Jobs and Growth Tax Relief Reconciliation Act of 20­03. This time around, the immediate expensing and bonus depreciation components are even more attractive.

You won’t want to jump in and buy equipment strictly for these tax breaks, and you’ll want to talk to your accountant about all the specifics, and about your own situation, before moving any planned purchase into 2008. Still these special, limited-time benefits may well be worth exploring.

The tax breaks in the Economic Stimulus Act are designed for smaller businesses. They were enacted to stimulate the economy by encouraging businesses to purchase equipment sooner, according to Ken Cloutier, a certified public accountant (CPA) in the office of Wipfli LLP in Rhinelander, Wis. Here is a look at the two basic provisions:

Special expensing. Under the Economic Stimulus Act, you can expense (within certain limits) qualified purchases of up to $250,000 in equipment placed in service this year, provided the total of such purchases for the year does not exceed $800,000. (Purchases beyond $800,000 reduce the amount you can expense on a dollar-for-dollar basis.) The new ceiling on expensing is nearly double the $128,000 of purchases you could expense in previous years.

Bonus depreciation. Now you can take bonus depreciation equal to 50 percent of amounts beyond the $250,000 limit on special expensing, again for equipment purchased and placed in service in 2008. You can then claim regular depreciation on the remaining 50 percent of the cost.

Why buy now?

The accompanying tables illustrate the tax advantages of buying new equipment in 2008. If you were to buy $400,000 worth of new equipment this year, you could immediately deduct $340,000 on your 2008 tax return. That’s $157,600 more than you could have deducted for the same purchase last year.

Your actual first-year benefit under these tax law changes will depend on the characteristics of your business. Factors such as taxable income, time of year when you bought the equipment, and your particular tax scenario may limit the benefit. Still, these provisions make it worth your while to consider buying equipment now, or soon — especially if your were already considering additions or replacements to your fleet.

When have the tax laws worked so heavily in your favor? When has there been a better time to buy? Contact your tax professional to discuss specifically how these special and temporary provisions can help your business.



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