Economic Stimulus Act Gives Business Owners Some Much Needed Financial Relief

As a business owner, the Economic Stimulus Act that Congress has passed contains an important component that can affect your cash flow. This component of the Act states that business owners who purchase and put into use new equipment in 2008 will be able to claim an additional 50% in depreciation on that equipment on their 2008 taxes! That can mean a huge tax savings to you! Congress is hoping that this act will spur on business owners to purchase equipment now, which will help to stimulate the economy.
Let’s take a closer look at the Act itself. As stated above, you must purchase AND put into use the new equipment in the year 2008. That means that this act won’t apply to custom ordered equipment that you won’t receive and put into use until 2009. It also means that the sooner you purchase your equipment, the better! That way you are ensured of having your equipment delivered and operational in 2008. There is also no limit on the number of equipment purchases that you can apply to this credit in 2008. So you could make one equipment purchase or ten purchases! Of course, the equipment must qualify for depreciation in your business in order to qualify for the deduction. In general, more costly equipment that will be in use long term in your business will qualify for depreciation. This means that there is a great deal of latitude regarding which types of equipment will apply. If you aren’t sure what types of equipment would apply for your particular situation, speak to your accountant. The great thing is that this opportunity will apply for all types of business owners. That means that everyone from the home daycare provider to the brain surgeon can take advantage of this opportunity. Obviously, the more costly the equipment purchase, the larger the depreciation deduction will be.
What can this mean for the average business owner? Consider a business owner that is a Sole Proprietor, the home child care provider we mentioned above. A child care provider doesn’t need as much equipment as the brain surgeon, and certainly won’t spend the same amount on the equipment either! However, a child care provider could purchase a new piece of play equipment, such as a swing set, jungle gym, or trampoline, and could claim these items as depreciable expenses on their 2008 taxes. The provider would then be able to claim an additional 50% depreciation deduction on these items in the 2008 tax year! Other pieces of equipment that may qualify for the depreciation deduction for the home daycare provider are computers, computer accessories, and large appliances. Now let’s look at a small corporation, say a computer consulting company. This company could use this opportunity to purchase new servers, large software packages, or new computer equipment that would qualify for the depreciation deduction. Whether they purchase one computer or five servers, they can take the deduction on each item purchased. Finally, a large corporation, a construction company for example, could use this opportunity to purchase a new bulldozer, new communications equipment, and/or new computer equipment. This Economic Stimulus Act becomes especially beneficial to a business owner such as the brain surgeon we mentioned above. Physicians and medical providers often need to purchase costly medical equipment. The depreciation deduction they can receive by purchasing the equipment and putting it to use in 2008 could make the purchase that much more worthwhile.
With the passing of this new Economic Stimulus Act, business owners are finally receiving a much needed break when it comes to their finances. Since this deduction is only good for the 2008 year, it just doesn’t make good financial sense to wait until next year to make that equipment purchase. Do it now, while you can still receive the tax benefits!