Business Capital Expenses -2009

Many clients are weighing the advantages of buying a piece of equipment in this tight economy. As a tax lawyer, I can develop a cost-benefit analysis to compare purchasing versus leasing the equipment and help determine whether the after-tax expenditure is likely to be worthwhile given the projected additional business the equipment would bring.

For 2009, there is a first-year bonus depreciation of 50 percent of the cost of the asset, in addition to the traditional depreciation schedule on the average  equipment life of seven years.

And a number of clients can benefit from changes resulting from the American Recovery and Reinvestment Act.

    American Recovery and Reinvestment Act                     Opportunities

• Bonus depreciation for new assets in the first year allows a company to write off 50 percent of the cost of a new fixed asset, in addition to the normal depreciation (average seven-year life). This applies to small, middle-market and large companies. It is designed to help struggling businesses recoup a larger percent of their cash, as well as those trying to grow their businesses.

• Extension of net operating loss back five years instead of two for a small business with gross receipts of $15 million or less. The business can apply for refunds of previously paid taxes.

• The Work Opportunity Tax Credit provides a $2,400 credit for each adult employee hired who is part of target group, such as a person who received temporary assistance to needy families, for 18 months. Credits also are available for hiring a disabled veteran ($4,800), high-risk youth, vocational rehab referral, and others. The amount for some hires varies by target group.

• Certain small to medium-sized businesses may use Section 179 expensing for capital expenditures to the limit of $250,000 in 2008, and this was extended for 2009 capital expenditures. The Section 179 election has to be made in the tax year the property is placed in service. If the item costs more than $250,000, that overage has to be depreciated. If businesses don’t use the entire Section 179 deduction this year, it can be rolled over to next year.