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How Can the Economic Stimulus
Act of 2008 Help Reduce Taxes for Your Business?
Congress and President Bush have agreed to try to jump-start
the economy with a stimulus package that will provide tax incentives to small business owners in 2008. The key component of
the bill is to give businesses a faster tax write-off to purchase new or used equipment or cars and trucks.
Under old law, you could buy up to $128,000 of equipment
and expense the cost, as opposed to taking a depreciation deduction over time. The new law will now allow you to expense up
to $250,000 of such costs. Like all tax rules, there are special limits to watch out for.
For example:
- You can only take this deduction to the extent of your taxable income of the business. So, if you have only $100,000
of taxable income in 2008, you could only take this deduction to that extent.
- If you purchase over $800,000 of equipment in 2008, you begin to lose the opportunity to take this expense deduction
dollar-for-dollar. So, if you purchase $1,050,000 of equipment in 2008, you cannot take any deduction under this rule.
NOTE: If you are a small business client considering the purchase this year of new computers, software, office
furniture, lab equipment, heavy machinery for contractors, certain purchases for clients in real estate, or specialized industrial
equipment, getting up to a $250,000 tax deduction could be very beneficial in reducing your taxes. It is also important to
realize that this will generally not cause a problem with the dreaded alternative minimum tax.
Another significant change in the law allows clients to
take 50% bonus depreciation in 2008. Generally, on the first $250,000 of equipment purchases, you would elect to fully expense
the cost as discussed above. However, if you purchased even more equipment, this would give you a significantly accelerated
tax deduction as compared to old law.
Lastly, if you purchased in the past a car or pickup truck
for your business, you generally could only deduct $3,060 in the first year as your maximum depreciation deduction. The new
law will allow up to an additional $8,000 deduction if purchased in 2008.
NOTE: Before you consider trading in or selling your old car or truck for a new one, please consult us first
so we can determine the very best strategy to use for your specific situation.
Like all changes in taxes, you need to carefully consider
what is best in your particular situation. Please contact us to discuss how this new law will specifically affect you and
your business.
Wendy Ezell, CPA
dawezell@verizon.net
(817) 481-3784
Please feel free to forward this email to business associates
who might benefit from this information.
This information
is of a general nature. It may omit many details and special rules and is current only as of its published date.
Please
contact us for more information and how it pertains to your specific tax or financial situation.
Pursuant
to US Treasury Regulations, we must advise you that any tax advice included in this communication is not intended or written
to be used, and cannot be used, by a recipient for avoiding penalties that may be imposed on the recipient by any governmental
taxing authority or agency.
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