On February 17th 2009 the ARRA - American Recovery and Reinvestment Act of 2009 was signed into law as an economic stimulus package. Economic Stimulus Info is an informative resource focused on helping business owners understand the benefits available to them from the recently passed ARRA / Economic Stimulus Act. There are specific aspects of the ARRA that are only applicable to small and medium sized businesses. We will outline and detail these specifics including Section 179 and be an informative resource for business owners across the country.
Although nearly two-thirds of the $787 billion economic recovery plan is geared toward government based initiatives to create jobs and spark activity in stalled sectors of the economy, about one-third provides tax relief and investment incentives for small to medium sized businesses. Small and medium sized businesses have always been catalysts of economic growth and employment. It is both comforting and reassuring to know that the ARRA contains pronounced benefits for businesses – specifically geared toward the small to medium sized companies that have the ability to jumpstart the economy both locally as well as nationally.
While the ARRA has a particular focus on creating jobs in the green energy, highway, and school building sectors, there are several other industries that stand to benefit significantly from the economic stimulus act. Industries such as electronic medical records, utilities and all types of professional services such as engineers, attorneys, accountants, consultants, regulators and administrators will experience heightened demand and be positioned for job growth and greater economic prosperity. Furthermore, any company that invests in capital equipment is able to create a substantial tax shelter through the enhanced parameters of the Section 179 deduction.
One of the most noteworthy aspects of the economic stimulus package is the extension of the 50% bonus depreciation provision. An additional 50% bonus depreciation creates immediate and tangible value for all businesses that update, replace, or add any capital equipment (including software) in 2009. Additionally the bonus depreciation provision includes special bonus depreciation language tailored specifically for the equipment finance industry which will likely enhance the flow of liquidity as equipment finance lenders are stimulated to contribute toward an overall national economic recovery.
The economic stimulus package has pronounced benefits and powerful growth incentives for small to medium sized companies. In general these economic stimulus benefits are geared toward businesses with less than 500 employees and less than $15mm in annual revenue. The expanded section 179 deduction allowance from the last economic stimulus package has been extended through 2009. The write off limit remains at $250K meaning that businesses can expense (rather than depreciate) the entire purchase price of a capital equipment acquisition up to $250K.
Prudent business owners and astute finance professionals agree that taking a large one time tax deduction in a single fiscal year (rather than slowly depreciating an asset over its economic useful life) makes sense. The business effectively obtains cash to put back into the operation this year, plus ground is not lost due to inflation, which would likely happen otherwise and has happened in previous years when the economy was at a similar cyclical point.
Section 179 makes the acquisition of capital equipment far more affordable because of the economic stimulus package. When a business purchases, leases, or finances new equipment the total cost of ownership is dramatically reduced due to bonus depreciation and expanded section 179 expensing limits.
On a $500K capital equipment purchase in 2009 (the acquisition can be financed or leased as well) the business can write off $400K of the $500K investment this year instead of having to wait to recover this money over a normal 5 year depreciation schedule. The business would take the $250K section 179 expensing limit and then apply 50% bonus depreciation to the remaining $250K balance creating an additional $125K write off. This is $375K from section 179 + bonus depreciation ($250K + $125K) and the remaining $125K ($500K - $375K) would be depreciated over 5 years at $25K per year. The end result is a $400K write off ($375K + $25K) when you factor in the regular first year depreciation of $25K ($125K / 5 years).
The economic stimulus package also allows businesses to carry back net operating losses for 5 years instead of the previous 2 year limit. A business that is currently losing money could apply these losses to a previous profitable year and then claim a refund for taxes paid that year. This economic stimulus provision will create an immediate cash injection into certain companies.
The ARRA is a substantial economic stimulus program which should lead to both stabilization and economic improvement. This website will be a great resource for your business as the economic climate in our country continues to improve – please bookmark it and make a point to check back frequently for updates.