Offset Printing
The Economic Stimulus Act of 2008
Friday 19. September 2008 - Yesterday, February 13, 2008, President George W. Bush signed the "Economic Stimulus Act of 2008" into law. This new law provides many businesses with two valuable tax incentives: enhanced Code Section 179 expensing and bonus depreciation.
“The stimulus package will provide relief to individuals and incentives to businesses – especially small printing companies – at a time when the economy is slowing,” said Printing Industries of America, Inc. (PIA) Vice President of Government Affairs, Lisbeth Lyons. “This stimulus package comes at [the] right time as the graphic communications industry shows continued signs of softening.”
PIA states, “Especially helpful to the industry are provisions calling for a temporary fifty percent bonus depreciation deduction on new equipment in the year it is placed in service and an increase in expensing limits, both of which will provide immediate incentives for printing companies to invest in and expand their companies.”
The new law doubles the amount a business can expense on its federal income tax return for qualified personal property purchased and placed in service in the customers tax year beginning in 2008. Under the new law a business can deduct up to $250,000 of the cost of depreciable tangible personal property used in a trade or business as long as the total cost of all qualified personal property placed in service during the year does not exceed $800,000.
For each dollar that the amount of qualified property placed in service during the year exceeds $800,000, the amount that can be expensed is reduced by one dollar. This dollar-for-dollar reduction means that no expense can be taken if qualifying purchases exceed $1,050,000 during the tax year. In addition, this deduction is disallowed if the taxpayer does not have taxable income for the year the property is placed in service. This disallowed deduction may be carried forward to a non-loss year, however.
The new law also provides qualifying taxpayers bonus depreciation equal to 50 percent of the adjusted basis of qualifying personal property purchased and placed in service during calendar year 2008. This bonus depreciation has no investment limit and is available for all eligible tangible personal property. To be eligible for this bonus depreciation, the original use of the property must begin with the taxpayer and must occur after December 31, 2007, and before January 1, 2009. There cannot have been a binding written contract before January 1, 2008, to acquire the property. The 50% bonus depreciation allowance is in addition to regular depreciation and any Section 179 deduction claimed.
Example 1: ABC Printing Company purchases and places in service printing equipment (7-year MACRS property) during 2008 for a total cost of $800,000. ABC wants to claim the maximum depreciation allowed for 2008. Assume half-year MACRS depreciation is allowed. The combination of the Section 179 deduction, the 50% bonus depreciation allowance and regular MACRS depreciation is figured as follows:
Maximum Sec. 179 deduction for 2008 only
….
.$250,000
50% bonus depreciation [($800,000 – $250,000) x 50%]……………………$275,000
MACRS depreciation [($800,000 – $250,000 – $275,000) x14.29%]
….$39,298
The total deduction allowed for 2008 is $564,298. The remaining basis is recovered in the following years using regular MACRS.
Example 2: XYZ Printing Company purchases and places in service printing equipment (7-year MACRS property) during 2008 for a total cost of $3,000,000. XYZ wants to claim the maximum depreciation allowed for 2008. Assume half-year MACRS depreciation is allowed. The combination of the Sec. 179 deduction, the 50% bonus depreciation allowance and regular MACRS depreciation is figured as follows:
Maximum Sec. 179 deduction for 2008 only
..
$0
50% bonus depreciation ($3,000,000 x 50%)…………………………………$1,500,000
Regular MACRS depreciation [($3,000,000 – $1,500,000) x 14.29%]
..$214,350
The total deduction allowed for 2008 is $1,714,350. The remaining basis is recovered in the following years using regular MACRS.
This information represents our general understanding of the application of certain existing U.S. federal income tax laws and regulations. It is not intended to be tax or legal advice. Each customers tax situation is unique, and he should consult his tax advisor for advice and information concerning his particular situation.