On Feb. 13, 2008, President Bush
signed into legislation the
Economic Stimulus Act of 2008.
While its benefits to individuals have
been widely touted in the media, there
are advantages available to businesses
as well, including a number of tax
Smart Business spoke with Leslie
Balmforth, principal and chief operating
officer of Tauber & Balser, P.C., on its
impact to businesses and how they can
take advantage of the tax savings opportunities it provides.
What are the major business tax incentives
of the new law?
The Economic Stimulus Act increases
the Code Section 179 depreciation
deduction and brings back bonus depreciation for 2008. The Internal Revenue
Service Code provides an immediate
expense deduction for taxpayers who
elect to treat the cost of qualifying property, called Section 179 property, as an
expense rather than a capital expenditure for the year the property is placed in
service. Before the Economic Stimulus
Act, the maximum Code Section 179
deduction for 2008 was limited to
$128,000 of qualifying property. With the
new law, the deduction will almost double to $250,000. For tax years beginning
in 2009, the maximum deduction will be
reduced to $125,000, adjusted for inflation. Qualifying property must be tangible depreciable business property (new
or used), depreciable under Code
Section 168, and acquired by purchase
for use in the active conduct of a trade
What are some of the limitations of the
Section 179 deduction?
There are two main limitations to the
Section 179 deduction: the taxable
income limitation and the investment
limitation. The taxable income limitation
states that the total cost of property that
may be expensed for any tax year cannot
exceed the total amount of taxable
income derived from the active conduct of any trade or business during the tax
year. The amount disallowed as a result
of the taxable income limitation can be
carried forward to future years subject
to certain limitations.
The investment limitation affects businesses that purchase a significant
amount of assets during the course of a
year by limiting the amount of the allowable Section 179 deduction. A business
can lose part or all of its Section 179
write-off by reducing dollar for dollar
the amount of qualifying assets in excess
of the investment limitation for that
year. The Economic Stimulus Act
increased the threshold for 2008 to
$800,000. In tax years beginning in 2009,
the threshold will be reduced to
$500,000, adjusted for inflation.
How will these deductions and limitations
These examples illustrate how these
deductions and limitations will work:
- A business purchases qualifying new
and used assets during 2008 in the amount of $225,000. Under the new law,
the entire $225,000 can be written off as
a Section 179 expense on its business
tax return, provided the income limitation is met. Prior to the new law, only
$128,000 would have qualified as a
Section 179 deduction.
- A business purchases qualifying new
and used assets during 2008 in the
amount of $850,000. Since the investment limitation threshold under the new
law has been increased to $800,000, only
$50,000 of the excess investment purchase will need to be applied dollar for
dollar against the eligible Section 179
deduction. This will result in a Section
179 deduction of $200,000 versus a zero
deduction under the old law.
How does the bonus depreciation work, and
how does it impact the business taxpayer?
The new law also provides business
taxpayers with 50 percent bonus depreciation for qualifying property. Under
first year bonus depreciation, a business
can deduct half of the cost of a new
asset and write off the remaining cost
with the Section 179 deduction (if available) and/or regular depreciation deductions during the asset’s recoverable life.
In essence, businesses can take advantage and utilize both the increased
Section 179 deduction amounts and the
bonus depreciation to reduce a significant amount of their taxable income.
For property to qualify, it must be purchased and placed in service by Dec. 31,
2008, or by Dec. 31, 2009, for certain
Check with your tax adviser to see
what property qualifies for the bonus
depreciation and for more information
on the new Economic Stimulus Act of
2008 and how it can benefit your business or you individually.
LESLIE BALMFORTH, CPA, is a principal at Tauber & Balser, P.C. and serves as chief operating officer. She is responsible for managing the financial and operational aspects of the firm including human resources, marketing, employee benefits, technology, facilities
management, cash management and internal accounting. Reach her at (404) 814-4985 or [email protected].