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The ...
By lowering taxable income, the Economic Stimulus Act can still cut your 2008 tax bill.
By Susan Conner
The Economic Stimulus Act (ESA) padded middle-income families’ wallets last spring and summer, but ESA’s additional goal is to encourage business purchases. Businesses can still enjoy ESA’s two tax incentives: enhanced expensing and temporary bonus depreciation.
Michael C. Meidel, CPA and partner in Peoria, IL-based Clifton Gunderson LLP, a national, certified, public accounting firm, said ESA allows companies to significantly increase depreciation claimed in the first year, which can result in positive cash flow through tax savings. “In these challenging economic times, this can free up sizeable resources to help an operator grow his business,” Meidel said.
Meidel noted the current provision for the 50% bonus depreciation is only for new, qualifying assets purchased between January 1, 2008 and December 31, 2008. The accelerated Sec. 179 expense is for assets purchased in tax years beginning in 2008. The depreciation bonus is elective (you don’t have to use it), and it applies to regular and alternative minimum tax purposes.
Enhanced expensing
Under Code Sec. 179, a taxpayer, other than an estate, trust and certain noncorporate lessors, can elect to deduct as an expense, rather than depreciate, up to a specified amount of the cost of new or used tangible personal property placed in service during the tax year in the taxpayer’s trade or business (section 179, property).
Under the expensing election, a taxpayer can deduct costs immediately, rather than depreciate them over several years. A full, expensing deduction is allowed throughout the tax year, even on the last day of the tax year. Also, by lowering the adjusted gross income (AGI) of a taxpayer who is unincorporated (or operated through a pass-through entity), the taxpayer may benefit from itemized deductions or personal exemptions that would otherwise be limited or phased out by the taxpayer’s AGI.
The new law almost doubles the amount of deductible Code Sec. 179 expensing for 2008 to $250,000 and increases the threshold for reducing the deduction to $800,000.
For tax years beginning in 2008, ESA increases the $128,000 expensing limit to $250,000 and the overall investment limit from $510,000 to $800,000.
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