A Tax Break to Think About

OK – here’s the warning. While we’re going through an economic wringer and worrying about meeting the next payroll, I’m going to talk about spending money.

Actually, this is about saving money in the long-term. And it’s an opportunity where time is quickly running out … maybe.

Oddly enough, the savings opportunity comes via everyone’s friend in business: the Internal Revenue Service. Actually, it’s something that’s courtesy of the U.S. Congress and President Bush: IRS Code Section 179.

Since 2002, many of you probably dealt with Section 179, which details the ability to fully expense tangible property (essentially, anything but real estate and consumable materials) in one year. The one-year-write-off limit started at $25,000, and received several adjustments since then.

Section 179, unfortunately, became known as the “SUV loophole,” as individuals used it to expense vehicles and the media targeted the ability to write off a fully blinged Escalade or Cayenne. Some legislative fine-tuning changed that (the SUV limit is now $25,000), and also increased the one-year total write-off limit to $100,000.

Ten months ago, the Congress and the Bush administration agreed on new limits as part of the Economic Stimulus Act of 2008, as well as a special depreciation allowance. The IRS noted the details in a June news release, with the main focus on the boost of the one-year limit to $250,000, as well as another 50-percent one-year credit on the adjusted (minus that $250,000 deduction) worth of new business assets.

The section179.org Website offers further details on this, plus a handy calculator to figure out the “real” (minus the tax expensing) costs of new equipment. When you start plugging in the price tags of major stone-processing equipment, there’s some real bang-up savings for stone factories and fabricators.

Unfortunately, 2008 proved to be a bust-up year for business overall and business investment, as customers got scarcer and money for loans and leasing disappeared into the economic ethereal. The new Section 179 provisions expire at the end of this month, and there’s a nasty kicker for year-end purchases: You need to take possession and install new equipment by Jan. 1, 2009, for the big savings.

That’s going to cut out CNC machines and anything else that’s not in stock at the supply house, although you can still do well with computers, software and other quick-to-ship items. The one-year-write-off limit drops back to $133,000 in 2009, with no 50-percent additional credit. (That’s detailed in this very handy IRS procedural document on next year’s tax rates.)

Section 179’s one-year write-off may go back to $250,000 next year, if Barack Obama makes good on a campaign pledge. He’s sticking with the quarter-million-dollar expensing, even with a specific announcement on his transition-team Website. The additional 50-percent write-off likely won’t be carried over from 2008, but the $250,000 is better than nothing.

If you can still take advantage of the 2008 provisions of Section 179, make your move now. If not, keep an eye on Congress (which is wise counsel in any case) next year; if the one-year write-off limit goes back to $250,000, take another look at some major stone equipment. Yes, we may be scurrying to find any profits, but slow times often yield the best bargains.

Thanks to Drew Thornton of Laser Products Industries for his contribution to this entry.

Emerson Schwartzkopf

 

You can read up-to-the-minute news on the dimensional-stone trade and search the archives at www.stonebusiness.net, where you can also find this blog at the Main Menu under the clever title of “Editor’s Blog.”

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