Tuesday, July 08, 2008

Economic Stimulus Act of 2008

I read this article this morning and thought I would excerpt it here. It's a reminder of the tax benefits to business this year from the Economic Stimulus Act.

The Economic Stimulus Act signed by President Bush in February promotes business investments in 2008 by significantly expanding depreciation and one-time expensing options for qualified capital expenditures. This provides significant incentives for organizations to buy technology platforms and applications.

Those already planning to make a substantial technology purchase will receive a boost to cash flow, according to Matthew Shapiro, a professor of economics at the University of Michigan. But organizations probably won't make many additional investments, he says, because plans are
basically in place.

"The main effect is not to do additional investment but to get better cash flow results from investments that are already going to be undertaken," Shapiro says. "And that is substantial."
In the past, companies using a five-year schedule would claim depreciation of 20 percent the first year. For a company spending $1 million to replace all its computers and servers, that's $200,000. With the new bonus depreciation provision, companies can deduct 50 percent ($500,000) and 20 percent of the remaining balance ($100,000), for a total of $600,000 in the first year. The remaining cost can be depreciated over the recovery period.

  • Depreciation bonus at-a-glance

    The Economic Stimulus Act allows additional first-year depreciation of 50 percent of the purchase cost.

    The depreciation bonus helps businesses that buy equipment this year cut their 2008 tax bill.

    The bonus applies to purchases of tangible personal property with tax lives of 20 years or less, among other things.

    Equipment must be purchased and placed in service in 2008.
  • Section 179 expensing at-a-glance

    The Economic Stimulus Act nearly doubles the Section 179 expensing limit to US$250,000 from US$128,000.

    Companies can expense up to US$250,000 in purchases as long as they don't spend more than US$800,000.

    New and used equipment is eligible for expensing.

    The expensing limit can be combined with the depreciation bonus.


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