WASHINGTON, D.C. — The economic stimulus package that will soon issue more than 130 million consumers tax rebates of $600 to $1,200 will also offer small businesses incentives to buy new equipment.
The government’s approved package includes two provisions aimed at helping small businesses increase capital spending: a huge increase in the Section 179 tax deduction and a bonus depreciation allowance.
The maximum for the Section 179 deduction — which allows small businesses to deduct certain equipment costs upfront rather than depreciate over time — has almost doubled for 2008, rising to $250,000 from a previously planned $128,000. This bonus depreciation allows businesses of any size to depreciate up to 50% of the cost of equipment, with the balance to be depreciated according to regular IRS rules.
Companies that buy less than $800,000 in capital equipment during the year can take advantage of the Section 179 deduction. Not all equipment is eligible for the deduction, however; typically, computers, vehicles, manufacturing equipment and office furniture qualify. Air conditioning and heating units, for example, cannot be fully deducted under Section 179, but can be depreciated.
The equipment must be bought and put in service by Dec. 31, 2008, to qualify for the Section 179 deduction, but not necessarily paid for in full.
The stimulus package’s bonus depreciation allowance gives business owners a larger-than-usual first-year deduction for capital equipment. Drycleaning operators should consult an accountant to take full advantage of the two provisions.