This week I learned that the Economic Stimulus Package of 2008 that President Bush signed back on February 13, 2008 allows organizations to write off 60-100% of their purchases before
12/31/08. The tax savings from this accelerated write-off will reduce
your “after-tax” cash outlay by approximately one-third.
Here is how it works
Small Businesses can write off their entire purchase up to $250k. This is called a Sec 179 deduction. Small businesses are defined as those that make $800k or less in capital expenditures for the year.
All other businesses, whether small or large, get 2008 bonus depreciation of 50% if they make their purchase by 12/31/08. Here is how that works. Let’s say you buy $500k of Netcordia products - you get to write off 50% or $250k as bonus depreciation. Then
the remaining $250k, you depreciate over 5 years, so you take another 20% depreciation on the $250k. Therefore, when you spend $500k, you get to write off a total of $300k, saving substantial income taxes.
Here are more details about the Stimulus Act:
There are two provisions under the Economic Stimulus Act that provide tax benefits for businesses:
1) Bonus Depreciation: You may qualify to take an additional one time 50% bonus depreciation allowance (in addition to standard depreciation) for purchases made during the 2008 calendar year.
2) Section 179 Bonus: You may qualify to depreciate up to 100% of your software cost in one year. Section 179 was designed to dramatically increase the expense limits for the tax year of 2008.
Bonus Depreciation
The Stimulus Act allows certain buyers to take a one-time 50% Bonus Depreciation for their 2008 taxes on new software purchased or financed after December 31, 2007 and before January 1, 2009. All companies, regardless of the size of their investment are eligible for the bonus
depreciation.
Section 179 Bonus
Under Internal Revenue Code 179, new equipment and software can either be depreciated over its useful life, or expensed immediately. The new Section 179 Deduction limits will have a considerably large impact on your software purchases. Now you can write off 100% of your purchase
up to $250,000, as long as your total capital expenditures for the year are
less than $800,000. The overall limit is up from $125,000 in 2007.
Section 179 Bonus Quick Facts:
-
To be eligible, software purchased must be placed in service in 2008.
- Note that every dollar spent over $800,000 is subtracted from the total deduction amount.
- Not applicable if a binding purchase contract existed prior to 1/1/08.
- Save even more, as the Section 179 Bonus can be combined with the Bonus Depreciation!
- The bonus expires December 31, 2008.
The Economic Stimulus Act doesn’t last long, so if you have purchases to make, you’ll need to act fast!
NOTE: This information is provided as a courtesy and
should not be construed as tax advice or as a promise of potential tax savings
or reduced tax liability. Please contact your own CPA or tax attorney to see
how this may apply to your situation.