Will The Stimulus Package Benefit You?
 By Alex R. Merriman

The Economic Stimulus Act of 2008 that was signed into law on Feb. 20, 2008, could be a boost for small-business owners.

Steve Preston, administrator of the U.S. Small Business Administration, outlined the benefits of the stimulus package.

“This bill is a win for small businesses in three major ways: Tax rebates will stimulate short term consumer spending, some of which will flow to smaller companies; a 50-percent bonus deduction on new equipment that normally would be depreciated over the long term; and, it increases the limit on expenses that small businesses can deduct from annual income.”

Here’s how each of those economic stimulus parts could help your small business.

Tax Rebates
The U.S. Treasury Department will start sending tax rebate checks to taxpayers beginning in May. More than 130 million households are expected to receive those checks.

People who are eligible for the rebate may receive a one-time stimulus payment of up to $600 ($1,200 if married and filing jointly). There is also a $300 per child payment for qualifying children younger than 17.

The hope and expectation is that consumers will spend these checks and give the economy a shot in the arm. If they do, there’s good chance that some of the stimulus money will flow into small businesses as consumers purchase goods and services.

There’s more good news, too. You could receive a rebate check.

To receive a payment, you must file a federal income tax return for 2007. If you file your 2007 tax return early or by the April 15, 2008, deadline, your check will probably arrive in May.

But, if you file for extensions on your tax return, you won’t receive a payment until after you file your return.

The IRS will determine your eligibility to receive a rebate, figure the amount of the payment and send you the payment.

Don’t confuse this tax rebate with any 2007 income tax refund that Uncle Sam might owe you. Income tax refunds for 2007 will be made separately from the one-time stimulus payment.

Bonus Depreciation
Depreciation is an income tax deduction that allows a taxpayer to recover the cost or other basis of certain property over several years. It is an annual allowance for the wear and tear, deterioration or obsolescence of the property.

The Economic Stimulus Act includes a 50-percent bonus depreciation on new equipment that normally would be depreciated over the long term. That could mean a bigger tax deduction in 2008 for many small-business owners who purchase new equipment.

This provision gives businesses a first-year depreciation totaling 50 percent of the cost of the equipment. The remaining basis of the equipment is depreciated under regular depreciation rules.

To qualify for the 50-percent bonus depreciation, the property must be placed in service after Dec. 31, 2007, but generally before Jan. 1, 2009. Property must also meet certain requirements to qualify for the bonus depreciation.

Increased Expense Limits
Generally, a qualifying small-business can elect to treat the cost of certain property as an expense and deduct it in the year the property is placed in service, instead of depreciating it over several years. This property is referred to as Section 179 property, referring to the relevant section in the Internal Revenue Code.

The 2008 expensing limit for Section 179 property had been set at $128,000. The Economic Stimulus Act increased the limit to $250,000. That’s a big jump that can benefit small-business owners.

There are some caveats. The $250,000 amount provided under the new law is reduced if the cost of all Section 179 property placed in service during the tax year exceeds $800,000. The new law does not change the Section 179 limitation for sport utility vehicles, which have an expense limit of $25,000.

Take Advantage Of The Incentives
All of these tax incentives could potentially benefit your small business – but only if you know how to take full advantage of them.

The certified public accountants at ProTax can explain the new incentives and help you find ways to make the stimulus work for your small business.

As an AFS Member, you have access to advice from CPAs on all your tax questions at no additional charge. Through the AFS Web site, ProTax offers complete and confidential answers to your questions in one business day.

(Posted April 2008)

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