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Tax relief aimed at small businesses

E-mail|Link Posted by Jamie Downey June 24, 2009 07:43 AM

As I noted in a previous post, the American Recovery and Reinvestment Act (the stimulus bill) provided little relief or stimuli to small businesses. This is a source of frustration to me since I work with small businesses and can see their positive impact on the economy and their employees. These entrepreneurial types can actually grow the economy and the job base.

At least Congress and the Administration tipped their hat in the direction of small businesses when it comes to capital purchases. Under the tax rules, businesses that acquire fixed assets take depreciation expense for the value of that asset over a period of several years. (Fixed assets include things such as office equipment, machinery, vehicles etc.) Consequently, businesses can experience significant cash drain in the year of purchase. They incur the cash outlay for the fixed asset and are also burdened with increased income taxes (since the corresponding depreciation expense must be taken over several years as opposed to in the current year). The stimulus bill has extended some laws that were set to expire that try to avert this kind of cash drain on small businesses and encourage them to invest in fixed assets. Here are the details of these provisions:

50 percent bonus depreciation – Bonus depreciation has been popping up in recent years to assist businesses on their capital purchases. It allows businesses to expense 50 percent of their capital purchases in the year the asset is placed in service. The remainder is expensed over the assets useful life. This law had been in place in 2008 and has been extended through 2009.

Section 179 expensing – Another favorite of small businesses is called section 179 expensing. This is affectionately named after the section in the tax code which it is written. Under this law businesses can elect to expense up to $250,000 for purchases of fixed assets in 2009. (This amount is reduced if assets placed in service exceed $800,000, thus aiming the benefit strictly at small businesses). This is a permanent section of the law; however without the revision from the stimulus bill, the amount would have dropped to $133,000.

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Local finance professionals share insights and advice on issues such as budgeting, managing debt, and retirement planning.

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About the contributors

Jill Boynton is co-founder of Cornerstone Financial Planning in Newington, N.H. Along with traditional financial planning services, Boynton provides analysis specifically for divorce.

Andrew Chan is the founder of Integrative Financial Advisors in Framingham. He provides comprehensive financial planning advice and investment management services. He has been an adviser for over 12 years and works with clients to integrate all aspects of their finances including investments, retirement, education funding, and tax planning.

Cheryl Costa is a managing director at AFW Wealth Advisors, which has offices in Natick and Purchase, N.Y. She advises clients on investing, education funding, and estate planning. She holds a master’s in business administration from Boston University.

Jamie Downey has been an accountant for more than 14 years. He's a partner at Downey & Co. in Braintree. Prior to joining the firm, he served as a manager in the audit department of accounting firm KPMG.