Important Tax Changes Feb 2008:
On Feb 7, 2008 both the House and Senate passed H.R. 5140, the Economic Stimulus Act of 2008. AC has incorporated these revised numbers into our tax savings calculator. For tax years beginning in 2008, the Act increases the IRS Code Section 179 deduction to a limit of $250,000, up from $112,000 for 2007. The top-end investment limit is increased to $800,000 for 2008 up from $510,000 for 2007. Additionally, this stimulus package generally permits a bonus first-year depreciation deduction of 50% of the adjusted basis of qualified property placed in service in 2008.

Section 179 History:
Business owners and their financial advisors are wise to understand the significant impact of IRS Code Section 179. Section 179 was developed to encourage business expenditure and expansion. The expense limit was initially increased from $25,000 to $100,000 by an economic stimulus package signed into law in May 2003. This increased deduction has been extended through Dec 2009 via the Tax Increase Prevention and Reconciliation Act (TIPRA), effective law as of May 2006. As noted above a new economic stimulus package is likely to extend and increase this allowance for 2008 and 2009.

Section 179 Enables Rapid Depreciation:
Section 179 enables a business to write-off all or a significant amount of capital purchases up to a certain dollar amount in the 1st year of use. While equipment may have a 5 or 7 year useful life, the full tax expense may be realized in the 1st year. The simple advantage to this is a direct reduction of a business's bottom-line or adjusted gross income (AGI). Realizing the tax benefit in the 1st year may result in a significant tax refund, thereby preserving cash resources and enabling other types of investments or purchases.

Fundamentals of Section 179:
Generally applies to capital leases, finance, and cash purchases ($1 and 10% buyout contracts).
Accelerated depreciation is generally beneficial and desired.
Applies to a wide range of equipment and purchases, both new and used.
The deduction applies to the first year that the equipment is placed in service.
After a certain dollar amount of qualifying purchases, the Section 179 allowance is reduced by the amount of additional investment. This limit is expected to be $800,000 for 2008.
Section 179 is not automatically applied to eligible property. Use Form 4562 when filing your tax return to elect the deduction.

For Additional Resources on Section 179 and related tax benefits, please see:
» http://en.wikipedia.org/wiki/Section_179
» http://www.sba.gov/stimulus
» http://www.irs.gov/publications/p946/ch02.html#d0e1927
» http://www.irs.gov/newsroom/article/0,,id=179227,00.html
» http://www.Section179.org

Disclaimer: Associated Capital provides all of the enclosed for informational purposes only. The enclosed shall not be deemed to be a representation of any kind nor represent tax or financial advice. Consult with your accountant or financial advisor for more discussion and to determine how Section 179 applies to your business.