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TAX ALERT:
Many industries can benefit from Stimulus Package

Chances are you have heard countless news reports about the Economic Stimulus Package Act of 2008 and its plan to put money in the hands of middle-income Americans. However, a closer look at the Act reveals a number of measures that can positively impact those in industries where major asset acquisitions are frequently made.

Owners in such industries may want to plan their major equipment and other fixed asset purchases for 2008 in order to maximize benefits granted in the Economic Stimulus Package.  Your Anchin relationship partner is currently reviewing how this new Act can reduce your taxes.

Sec. 179 Expense Deduction Election  
To spur additional investment, the Act increases the Section 179 limit for the initial year expense deduction to $250,000 (up from $128,000). The Sec. 179 expense deduction election allows a current deduction for newly acquired assets that otherwise would have to be depreciated over a number of years.

This increase in the expensing election creates planning issues.  Any 2008 and 2009 planned purchases of major capital assets should be reviewed now in order to maximize this benefit. Because this tax break is designed to benefit primarily smaller businesses, the expensing election begins to phase out dollar for dollar when total asset acquisitions for the year exceed $800,000 (up from $510,000). The new higher limit applies for calendar year 2008 or a business’s fiscal year that begins in 2008.

As in the past, a business can claim the expensing election currently only to offset its net income, not to reduce net income below zero.

Bonus Depreciation
Another valuable provision of the Act offers an additional 50% depreciation allowance for certain property separate from the Sec. 179 deduction if the asset is acquired and placed into service in 2008.  Most equipment qualifies, but long-term assets with useful lives over 20 years are excluded.

Also of primary importance is the fact that this bonus depreciation allowance is allowed for Alternative Minimum Tax purposes.  

Because both the Sec. 179 limit increases and the 50% depreciation allowance can provide large 2008 deductions, you may want to consider making major asset purchases this year. That is, in effect, the exact purpose of the legislation – to boost the U.S. economy by providing tax incentives that will spur large purchases.  

Passenger Vehicles
In addition, passenger vehicles used for business purposes can qualify for the bonus depreciation. The first-year depreciation limit for passenger autos increased for 2008 by $8,000 (making the limit approximately $11,000).

The provisions of the Stimulus Package Act provide a prime opportunity for proactive tax planning. As always with tax law change, the provisions are complex so discuss your particular situation with your Anchin relationship partner.