Packaging

Recently Enacted Tax Incentives Provide Opportunity to Get Even More Value from 2011 Packaging Machinery Purchases

Monday 17. January 2011 - An extension of The Small Business Jobs and Credit Act of 2010 extends and temporarily increases the additional first-year depreciation provision for investment in new business equipment, such as packaging and processing machinery. For new equipment placed in service after September 8, 2010 and through December 31, 2011, the new law provides for 100% additional first-year depreciation. In other words, the entire cost of qualifying new machinery placed in service during that time frame can be written off, without limit.

Note that even though the legislation was not signed into law until December 17, 2010, the effective date of this provision was made retroactive, to include qualifying new equipment placed in service after September 8, 2010. Thus for:
New equipment placed into service between January 1, 2010 and September 7, 2010, a 50% Bonus Depreciation applies.
New equipment placed into service between September 8, 2010 and December 31. 2011, a 100% Bonus Depreciation applies – effectively expensing the cost of the asset in the first year for income tax purposes.
New equipment placed into service between January 1, 2012 and December 31, 2012, the Bonus Depreciation reverts to 50%.
The new law leaves in place the existing rules as to what kinds of property qualify for additional first-year depreciation. Generally, the property must be depreciable equipment with a recovery period of 20 years or less. Also the original use of the equipment must commence with the taxpayer – used machinery does not qualify.
Taxpayers must have taxable income to take advantage of the deduction. Deductions cannot be used to reduce taxable income below zero. Deductions are allowable even if the purchases are wholly or partially financed. This incentive particularly benefits small and mid-sized companies who have an opportunity to make investments that otherwise would be delayed or impossible to make this year.
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 new equipment, the expense deduction provides help in paying for it by lowering your tax burden and improving cash flow. Companies that take advantage of the tax incentive early in the year may also get some benefits with their estimated tax payments as they make their financial plans for the year. It pays to take advantage early. Companies planning to take advantage of the new tax incentive should consult their tax planner to fully understand the benefits. However, for most companies considering a new equipment purchase, this is a strike now opportunity to receive the value of new equipment, plus the added value and quicker ROI offered with the tax incentives.