Given the economic climate, small-business owners may be loath to make major purchases of new equipment or furnishings this year. But for those with money and an inclination to spend it, now is a good time to buy, as Congress enacted generous tax incentives for this year only. Businesses considering major expenditures may realize significant tax savings if they act promptly.
The Economic Stimulus Act of 2008 allows businesses to take an immediate write-off of up to $250,000 for equipment purchased this year, double the amount allowed in 2007. Businesses that place the assets in service this year are entitled to an additional 50 percent depreciation.
Sidney Kess, a New York tax lawyer and certified public accountant, gave this example: “Say a small business bought $600,000 worth of equipment and placed it in service – it could write off the $250,000, and half the remaining $350,000. That’s a total first-year write-off of $425,000. The remaining $175,000 would have to be depreciated. If it’s seven-year equipment, that would mean writing off $25,000 a year over the next seven years.”
The immediate write-off and resulting tax savings could give many businesses a welcome cash-flow advantage during a tough economic period. Of course, many businesses are too small to make such big purchases or simply do not have the need. But tax professionals say other fourth-quarter opportunities for tax savings are available.
Photo by Tim Bower.