Economic Stimulus Package Offers Tax Break for Equipment Buying

Decorators interested in expanding their business or replacing old equipment can rejoice in the new round of government incentives designed to help small business owners.
July 21, 2008

By Mark E. Battersby

Earlier this year, Congress passed, and the President signed, the Economic Stimulus Package of 2008, a $168 billion economic "rescue" package that included rebates for taxpayers and tax breaks for businesses. In addition to those tax rebates, the heart of the package, there also were tax breaks for businesses such as decorated apparel operations — breaks retroactive to the beginning of 2008!

The business portion of the economic stimulus package doubled the amount of equipment expenditures a small business can expense or immediately write off on their 2008 tax return from $125,000 to $250,000, with the investment limit increased from $400,000 to $800,000. It also allows a 50% bonus depreciation deduction for businesses buying major equipment.

According to the Joint Committee on Taxation, the bonus depreciation deduction will save businesses an estimated $42.3 million in 2008 and the write-off almost $1 billion. If you’re planning to purchase equipment, or have already purchased equipment since the first of the year, you, too, can take advantage of these savings.

Immediate Write-off
Generally, the cost of the imprinted sportswear operation’s equipment is recovered via depreciation deductions spread over a number of years. Under the current tax rules, an immediate write-off is available for decorators who choose to treat the cost of newly acquired equipment (and in some cases, software) and property, called Section 179 property, as an expense rather than a capital expenditure.

Thus, in lieu of depreciation deductions spread over a number of years, the tax rules allow commercial embroiderers, screen printers and promotional products distributors with sufficiently small amounts of annual investment the option of a one-time deduction (or expensing) of allowable items under Section 179 of the tax law.
 
The new investment ceiling means that the Section 179 write-off is reduced, dollar-for-dollar, by the amount that the total equipment or property acquisitions exceed $800,000. Thus, a decorator that purchases, say, $850,000 in equipment, will find the Section 179 expensing election reduced by $50,000.

Bonus Deduction
The other business provision contained in the new economic stimulus package is a 50% “bonus” depreciation deduction allowed for qualifying, new depreciable property placed in service during 2008. The deduction is claimed for the cost of property after reduction by any Code Section 179 allowance. After the cost of that new, depreciable property has been reduced by the Section 179 expensing allowance and the bonus depreciation, the amount remaining is depreciated or written off over the property’s useful life.

Generally, the so-called “major equipment purchases” encouraged by lawmakers do not include buildings. However, structures built as part of equipment or specifically to house equipment may have a useful life of less than 20 years and therefore qualify for bonus depreciation. Note: This section of the law refers to someone who builds a special structure or housing for a specific piece of equipment — a paint or spray booth, special heat chamber for curing, etc. Outbuildings, backyard sheds and the like fall into the category of home office write-offs or, in some cases, limited or non-existent home office write-offs.

Despite the current state of the economy, now could be just the right time to replace old equipment or add new equipment for your decorated apparel business. And you have an attractive federal tax write-off to help you.

Mark E. Battersby is a professional writer based in Ardmore, Pa., specializing in business and tax issues. To contact him, email MEBatt12@Earthlink.net.

Editor’s note: Because tax laws are subject to change and often open to interpretation, it is always advisable to seek the advice of a professional accountant to be sure your filing is in compliance with the code.