Economic stimulus for small businesses receiving scant notice

Remember back in 2005 when the government provided tax incentives for businesses, known as the “write off your SUV” act? The deal applied to the purchase of all business equipment, but the special SUV writeoffs got the headlines. Many jumped into that, although record oil prices must have made some SUV buyers wish the incentives were for a Prius. Now the deal is back, but few people have noticed.

The magic words in accountant-ese are “bonus depreciation allowance” and “qualified section 179 property.” Bottom line, and we’re definitely talking the real bottom line, is that you can write off up to 100 percent of the first $250,000 of capital expenditures if purchased and put into service within the 2008 calendar year. This business information was all overwhelmed by the news stories about the $300 checks mailed to taxpayers.

Chris Carcia, principal and partner at Avidiant Consulting Group, told me, “It’s amazing how many people aren’t aware of this. A few of our clients are, but the majority have no clue.” Part of the reason people didn’t notice is that the “write off your SUV” program from 2005 was discontinued in 2006 and 2007. Now it’s back, and not many people realize it.

Chris Griffith, CEO of StarPoint Technologies does realize this, and it was his e-mail blast to customers in the Dallas area that got my attention. Griffith credits his new focus on the Economic Stimulus Act with reviving multiple customer deals.

“The Act applies only to hardware and software, not services,” said Griffith. “A real estate firm is looking at a project worth about $100,000. Probably $80,000 will be hardware and software that qualifies. They’ll be able to write off all that $80,000 in 2008 rather than spreading the depreciation over five years.”

StarPoint has a link on its Web site to the IRS pages explaining how this all works. Using the IRS examples on applying the 50 percent bonus depreciation, StarPoint explains how to spend $400,000 and write off $304,000 the first year. That’s a lot of taxes not paid, meaning more money stays in your pocket.

One of Garcia’s consulting customers is about to receive funding to build three organic fish farms. The vendors are primed and ready to deliver the equipment as soon as funding arrives. Between the three farms, the company should save about $300,000, out of between $1.5 million to $3 million total equipment costs.

“$800,000 seems to be the magic number,” said Garcia. “The rules are easy to follow for accountants. Get the special reduction allowance form 4562-FY from the IRS.”

The IRS says “the $250,000 amount provided under the new law is reduced if the cost of all section 179 property placed in service by the taxpayer during the tax year exceeds $800,000.” I doubt any business that calls itself a small business will spend more than $800,000 on capital goods in one year. If so, consider yourself a medium business.

Both gentlemen agreed that small business owners will almost always miss this kind of tax incentive if not told by their accountant. Tax professionals get volumes of tax changes every year full of information like this, but rarely are programs worth so much money up front.

Like to lease? This does apply to leases that transfer the equipment to the owner at the end of the lease. Your typical “fair market value” lease won’t qualify. If you want to lease something soon, talk to your leasing agent about this to get your best deal.

The customer response to Griffith and StarPoint have been strong, as surprised business owners and managers had no clue about this Act. “I got about eight calls the first day after the e-mail,” said Griffith. “Nobody had any idea about this depreciation bonus.”

While I’m talking here about technology, hardware, and software, most other capital goods fit the bill. Machinery, office equipment, signs, and most other real property will qualify. Just about anything you can touch, except the people doing consulting, installation, and configuration services, will meet the criteria.

Griffith has another company ready to move to take the tax savings. “One company with about 100 users will now move up a project worth $25,000 to $30,000 to finish in 2008 rather than pushing it off until next year. They should be able to write off over $20,000 of hardware and software immediately rather than over five years.”

Sorry, but the SUV expense limit remains at $25,000. But with the market the way it is, an SUV that was $40,000 in April may now be $25,000. SUV dealers would love to talk to you. Trucks and vans get the special bonus depreciation for the first $11,160 spent. Buy an SUV, buy a truck, or buy some computers and software. Any way you do it, save some taxes.

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