Packaging

Tax Incentives Provide Opportunity To Get More Value From Packaging Machinery Purchases

Wednesday 26. March 2008 - The economic stimulus package signed into law February 13 contains two business related tax incentives to encourage capital spending, such as packaging machinery.

The tax incentives lower capital purchase costs by providing a bonus depreciation for 2008 and by raising deduction amounts. These incentives are available to all companies, but particularly benefit small and mid-sized companies who have an opportunity to make investments that otherwise would be delayed or impossible to make this year.
The accelerated depreciation provision gives companies a 50 percent bonus depreciation on new equipment placed in service during 2008 that would normally be depreciated over many years.
The increased deduction amounts raise the limit on expenses that businesses can deduct from annual income – from $128,000 to $250,000 – with a total cap of $800,000. You may have heard this referred to as Section 179 of the tax plan. Businesses can take advantage of both of these tax breaks, taking a deduction for the first $250,000 in equipment bought this year, and then the 50 percent bonus depreciation on the rest. Deductions are allowable even if the purchases are wholly or partially financed.
How the economic stimulus benefits your company:
Capital investments by definition are undertaken with an eye on long-term expansion or upgrades to existing production capacity. If you are considering expanding a plant or making investments in equipment, the stimulus package provides help in paying for it by improving cash flow.
Here’s an example:
If your company buys a machine that costs up to $250,000 in 2008, you can deduct the total cost of the equipment. If the equipment costs more than $250,000, but your company spends less than $800,000 on capital equipment during 2008, your company can also take advantage of the bonus depreciation. In this scenario where both incentives can be used a $300,000 machine with five-year depreciation would qualify for a $280,000 first year deduction (93 percent of the cost); and a $500,000 machine could qualify for a $400,000 first year deduction or 80 percent of the cost.
With these incentives, your company can lower its taxable income and lower its tax burden. Companies that take advantage of the tax incentives early in the year may also get some benefits with their estimated tax payments as they build the incentives into their financial plans for the year. It pays to take advantage early.
Another reason to take advantage early is to prevent an end-of-year scramble to meet the “in service by 2008” provisions of the incentives.
With the increased deductible to $250,000 many packaging equipment solutions are fully deductible. Companies planning to take advantage of the new tax incentives should consult their tax planner to fully understand the benefits. However, for most companies considering a new equipment purchase, this is a strike now, before the end of 2008, opportunity to receive the value of new packaging equipment, plus the added value and quicker ROI offered with the tax incentives.