The recently signed Stimulus Package is almost 1000 pages of law. But the Trillion Dollar Question is how does it benefit my business? Well, the primary benefits to small business owners are an extension of the $250,000 section 179 expenses and bonus first year depreciation of 50%. Following is an example for a capital equipment purchase using $300,000 as an example:
Machine price: $300,000
Section 179 expense: ($250,000)
50% bonus depreciation: ($25,000)
Standard depreciation ($3,572)
Total first year deduction: $278,252.00.
This could result in considerable tax savings depending on the company’s Federal income tax bracket. If a company is in a 25% tax bracket the tax savings could be as high as $69,573.00. ($278,252.00 x 25%)
It should be noted that Section 179 expenses may not exceed the company’s net income in the year they are utilized; therefore it may be advantageous to take only the 50% bonus depreciation on the entire purchase price. Bonus depreciation and standard depreciation are not subject to the “Net Income” convention. Always consult with your tax advisor prior to making a decision based on tax consequences.
The five-year carry back provision of the new bill would allow a company to apply for a refund of income taxes paid in a prior year if the depreciation expense cannot be used in the current year.
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