How the New Tax Law Can Help Your Business: Two Tax Breaks for Businesses

How the New Tax Law Can Help Your Business: Two Tax Breaks for Businesses
Congress recently passed the Economic Stimulus Act of 2008.
It's designed to inject $152 billion into the U.S economy.
What does this mean to you?

If you own a business, your business can take advantage of
two tax breaks: Increased Section 179 Amounts and Bonus
Depreciation.

You could be one of the 130 million taxpayers who will
receive a rebate check this year. For more on this tax
relief topic, please see my recent article: "Is The IRS
Sending You a Rebate Check? Find Out If You Are Eligible."

If you own real estate or invest in real estate, your may
find some relief with your "jumbo" loans.

INCREASED SECTION 179 AMOUNTS:

Before the new law, a business could expense up to $128,000
of the cost of qualifying property in 2008. Under the new
law, a business can expense up to $250,000 of the cost of
qualifying property. This is a huge increase!

Even the phase-out limits are increased. Before the new
law, if the cost of qualified property placed in service
during the year was more than $510,000, the amount a
business could expense was reduced (dollar for dollar) by
the amount over $510,000. Under the new law, the dollar
for dollar reduction still applies but the old $510,000
ceiling jumps to $800,000.

What property qualifies for the Section 179 Deduction?
The new law makes no changes to the general rules for the
types of property that are eligible for Section 179
expensing. Generally, the property must be depreciable
tangible personal property (so real property, such as land
and buildings, does not qualify) that is actively used in
the taxpayer's business. The property must be used more
than 50 percent for business and must be newly purchased
property.

BONUS DEPRECIATION:

The other incentive is bonus depreciation. The new law
provides qualifying taxpayers 50 percent first-year bonus
depreciation of the adjusted basis of qualifying property.
Make sure you make the election on your tax return - it's
required in order to claim the bonus depreciation.

What property qualifies for bonus depreciation?

To be eligible to claim bonus depreciation, property must
be one of the following types of property:

- Eligible for the modified accelerated cost recovery
system (MACRS) with a depreciation period of 20 years or
less (this includes most equipment, computers and furniture)
- Water utility property
- Computer software (off-the-shelf)
- Qualified leasehold property

The property generally must be purchased and placed in
service during 2008. Original use of the property must
begin with the taxpayer and must occur after December 31,
2007 and before January 1, 2009.

How is the luxury auto depreciation impacted?
Congress also increased the limitations on "luxury" auto
depreciation. Ordinarily, the first-year limit on
depreciation for passenger automobiles cannot exceed
$3,060. However, this limit was increased when bonus
depreciation was previously available to $4,600. The new
law raises the cap once again, setting it at $11,060 for
passenger autos and $11,260 for trucks and vans.

CAUTION! Be sure your business use of qualifying property
stays above 50%. If it falls below 50% you may have to
recapture some of the benefit previously claimed under
Section 179 or the bonus depreciation.

WHAT DO THESE TAX BREAKS MEAN FOR YOUR BUSINESS?

These are very generous changes! These changes provide
American businesses with an estimate $44 billion in
additional deductions in 2008.

You will definitely want to plan your business purchases
now. If you are planning on making equipment purchases in
the next few years, now is the time to look out how moving
those purchases to 2008 can cut your tax bill.

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Tom Wheelwright is not only the founder and CEO of
Provision, but he is the creative force behind Provision
Wealth Strategists. In addition to his management
responsibilities, Tom likes to coach clients on wealth,
business, and tax strategies. Along with his frequent
seminars on such strategies, Tom is an adjunct professor in
the Masters of Tax program at Arizona State University. For
more information, please visit
http://www.provisionwealth.com