Take advantage of the economic stimulus package

With so much coverage in the news on the recent personal tax rebate program, it would be easy to overlook the accompanying 2-part economic stimulus package that was also passed with the goal to spur business investments.

The legislation - a temporary change to the tax code - allows American businesses to invest in their infrastructure this year and deduct an additional 50 percent of the cost of their investment in 2008.  This is intended to encourage businesses to expand now because buying equipment, software, and tangible property this year will dramatically lower their taxes.

The legislation also increases expensing for small businesses. This means that a business placing less than $800,000 of equipment into service this year would be able to immediately deduct up to $250,000 – up from $128,000 – of its investment in 2008.

What does this mean for your business? For those of you considering accounting, customer relationship management or other software solutions in the 2008 calendar year, there could be an additional incentive to do so.
As always, consult with your accountant and/or tax advisor before making any purchases. See the following for more details.

Incentives for business investment

Because both the Sec. 179 limit increases and the 50% depreciation allowance can provide large 2008 deductions, you may want to consider making major software asset purchases this year.

• To spur additional investment, the act increases the Section 179 limit for initial year expensing to $250,000 (from $128,000).
• The Sec. 179 expensing election allows a current deduction for newly acquired assets that otherwise would have to be depreciated over a number of years.
• Because this tax break is designed to benefit primarily smaller businesses, the expensing election begins to phase out dollar for dollar when total asset acquisitions for the tax year exceed $800,000 (up from $510,000 before the act).
• The new higher limit applies for calendar year 2008 or a business's fiscal year that begins in 2008. As in the past, a business can claim the expensing election currently only to offset its net income, not to reduce net income below zero.
• Another depreciation-related provision offers a special allowance for certain property, generally if acquired this year.
• This is in addition to any such property that qualifies for Sec. 179 expensing. For eligible property, the special depreciation amount is equal to 50% of its adjusted basis.
• The following types of property are qualified for this special depreciation:

• Tangible property with a recovery period of 20 years or less

• Computer software purchased by the business

• Water utility property and

• Qualified leasehold improvement property.

Read the full text of this legislation on the government website.

We are available to review any plans you'd like to entertain to take advantage of these tax incentives.