06/ 03/ 2008
by Lena Anthony
Decode the economic stimulus package for small business
You have to spend money to make money. Congress just made investing in your business a lot easier this year by passing the Economic Stimulus Package for the American People Act of 2008, a bill signed by President Bush.
By now, you've likely heard a lot about the economic stimulus package, but do you really know what it could mean for your bottom line?
NFIB fought hard for the small business provisions included in the package, and now we want to make sure you understand how to take full advantage of them and get the most return. Look for future "Eye on the Economy" columns full of information—including practical advice—in upcoming issues of MyBusiness. But don't wait to act: The provisions expire at the end of the year.
In addition to providing one-time stimulus payments for all taxpayers, the package doubles the small business expensing limit from $125,000 to $250,000 and increases the overall investment limit from $500,000 to $800,000. It also includes tax incentives for investments of more than $800,000.
"This is a significant victory for small business owners," says NFIB Tax Counsel Bill Rys. "And it's one most small business owners can take advantage of immediately. For a small business owner already planning to make a significant investment, the additional tax savings is an added bonus. But there's also a great opportunity for business owners who've had that big investment in the backs of their minds to go ahead and make it."
So what are you waiting for? Here's what you need to know to make the most of the economic stimulus package.
Know what qualifies: Heavy machinery, computers, office furniture, equipment and vehicles can be deducted under Section 179 of the U.S. tax code. What doesn't qualify? Investments in property, including land and building upgrades.
Act fast: To take advantage of the higher expensing limits, you have to purchase the equipment and place it in service in 2008. "Placed in service means actually using it or that it's set up and could be used," Rys warns. After this year, the expensing limit drops to around $128,000 for 2009 and to $25,000 after 2010, unless Congress passes legislation to extend or make permanent the higher expensing limit.
Maximize your deduction: Get the most bang from the increased expensing limit by investing up to $250,000 in your business this year. You can expense the entire $250,000 in investments, dollar for dollar, up to $800,000.
Consult your accountant: The stimulus package also provides a 50 percent bonus depreciation deduction, which could be used to supplement the tax advantages of Section 179 expensing or generally could be used for more expensive investments. Bonus depreciation lets you take an immediate deduction of 50 percent of the investment rather than deducting the value over a number of years. If you are considering an investment that goes beyond $800,000, talk to your accountant, who can help you figure out how to maximize your tax savings. "Generally, expensing is the way to go, but in some situations, depreciating the cost is the better option," Rys says.
