On February 13, Congress’s $168 Billion economic stimulus package was signed into law by President Bush. It provides both cash rebates and fiscal incentives.  While the rebate checks for individuals are capturing most of the headlines, the bill also contains some extremely valuable benefits for small business owners.

The most significant is an increase in depreciation for several types of major purchases. Small businesses can instantly depreciate 50% of the cost of assets purchased in 2008, providing a serious tax advantage on capital expenses. This bonus depreciation can be applied to any physical asset with a normal depreciation period of 20 years or fewer, computer software, or even improvements to leased property.

OK – Here’s an example:  a business that purchases equipment worth $500,000 with a five-year recovery period for depreciation can now deduct $300,000 the first year (the 50 percent bonus depreciation of $250,000, plus the $50,000 which is 20 percent of the remaining $250,000). The rest would be depreciated at $50,000 per year during the next four years of the recovery period.

The other major change is an increase in allowed expenses – from $125,000 now up to $250,000 – that can be deducted from income for businesses with up to $800,000 in annual revenue, which is an increase from the previous $500,000 in annual revenue limit. This change means some smaller businesses can write off many typical purchases as expenses, instead of depreciating them, and even includes leased equipment.  In most cases, this will mean the deduction is allowable even if the purchases are wholly or just partially financed.  Visit my referral partner www.prfs1.com to learn more about commercial equipment finance opportunities.

Why “Small-Business Owners?”

Their customers will have some unexpected bucks to shop with, and it is likely that many of those dollars will be spent within the small-business community. Small-business owners are in a much better position to adjust their marketing plans and take advantage of that consumer windfall than are the larger corporations.

Additionally, and according to U.S. Treasury Secretary Henry Paulson, the rebate checks and incentives “should be a big part of adding 500,000 to 600,000 additional jobs this year.”

Sounds great huh? But where’s the catch?

As I see it, there are actually (3)three “catches”:

1.    First, one provision in the legislation requires that a business has to be profitable to utilize the benefits from the expensing portion of the bill.  Yes, meaning it’s a good idea to call your tax advisor BEFORE making any purchases. For more Tax Tips, click here:

2.    There’s no guarantee people will actually spend the money they get back via their rebate checks. Yes, it is likely but we’ll see. When staring at a potential recession, some people may view that a rainy day is only a dark cloud away and decide to save it.  If you are one of those who intends to save your rebate, click here.

3.    How many small business owners actually spend more than $250,000 a year? Not many.  But perhaps this is the year to expand, some of the best candidates might be restaurants, bars, direct mail, telephonic, excavating, hauling, medical or research small businesses where equipment prices are generally high and require frequent upgrading.

Basically, the two-year, $168 billion package is designed to deliver “a booster shot” to the slowing American economy according to some. Learn more about the stimulus package and its benefits for businesses from my ‘expert’ sources whereby most of the preceding information was gleamed:

·  With Stimulus Package, the Big Winner Could Be Small Business
The New York Times

·  Stimulus plan could be big win for small firms
WSLS

·  Beyond the stimulus: Lobbying for biz issues
CNN Money

Also visit the iRS website to see if you’ll qualify for the rebate:  IRS Economic Stimulus Payment Calculator

And by way of disclaimer:  Of course, every business’ tax & financial situation is unique. Before making any decisions based on this or any other advice, you should consult with your tax, insurance, legal and financial professionals to make sure these advantages apply to you.  The preceding weblog does not constitue any direct recommendation, tax or financial advice.

-Patrick Bonnett, Financial Advisor

Encore Financial Services, Inc., Omaha, Nebraska

See also the following free attachments for your use as a small business owner:

Sm. Biz. Owner Data Sheet; 8 Key Questions for Business Owners

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