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Good News for a Change!

There are two major tax implications for businesses embedded within the American Recovery and Reinvestment Act. These changes allow for immediate tax relief and make investing in your business as well as your customer purchasing new equipment not only feasible, but a financially sound decision as well.

1. Section 179 expensing. The Act extends the increased Section 179 expensing amounts currently available for the 2008 taxable year to property acquired and placed in service in 2009 (The new deduction limits are $250,000 on the deduction, and the total amount of equipment purchased cannot exceed $800,000).

2. Bonus depreciation. Another change that the American Recovery and Reinvestment Act brought to Section 179 is it offers a one-time "bonus first year depreciation" of 50% on qualifying equipment. This is after the above deduction limit is reached.If you buy enough equipment to exceed the $250,000 deduction, you can take"bonus" 50% depreciation on the rest - this is in addition to normal depreciation.

Example of how the new provisions can work for companies:

2009 Equipment Purchase............................

$400,000 First Year Write-Off....................................$250,000

(Under the new law, $250,000 is the Maximum Section 179 write-off)

50% Bonus First Year Depreciation................ $ 75,000

(On remaining value: $400k-$250k. $150kx50%=$75k)

Normal First Year Depreciation..................... $ 15,000

(Depreciation calculated at 5 years, meaning 20% per year, $75kx20%=$15k)

Total First Year Deduction............................ $340,000

($250k+$75kk+$15k=$340k)

Tax Savings on Equipment Purchase......... $119,000

(Assuming a 35% tax rate. $340k x .35 - $119k)

This sample calculation shows how taking advantage of the Section 179 Deduction can significantly lower the true cost of the equipment purchased or leased. In the example, $400,000 in equipment purchased has a true cost of $281,000. That's $119,000 added to the bottom line, which is substantial.

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