Economic Stimulus Act: Businesses Can Benefit

While American consumers get their checks, contractors can also benefit from the 2008 Economic Stimulus Act, which offers two significant tax incentives.

The 2008 Economic Stimulus Act offers tax breaks to help business owners invest in new equipment. The act expands small business expensing and offers a one-time bonus depreciation allowance for certain purchases. Eligible purchases include new construction, manufacturing, mining and agriculture equipment

Depreciation Allowance

This new depreciation allowance in the 2008 Act permits taxpayers to depreciate 50 percent of the cost of certain equipment and other purchases in the year the property was placed in service. They can then depreciate the ‘remaining basis’ of the property under standard depreciation rules.

New property purchased after December 31, 2007 and before January 1, 2009, is eligible, and the provision can be applied to standard and alternative-minimum tax situations. All companies, regardless of the size of their investment are eligible for the depreciation allowance.

Property used in contract construction has a five-year tax life, while property used in agriculture, mining and “most” manufacturing has a seven-year tax life.

Examples for Both Five-Year and Seven-Year Deprecation

Section 179 Expensing

The stimulus act also allows businesses to deduct the cost of certain purchases (termed ‘section 179 property’ for its location in the tax code), treating them as an expense during the property’s first year of service instead of spreading the depreciation over several years. Companies making more modest purchases are able to take advantage of both the bonus depreciation as well as the expensing incentive.  

Businesses are permitted to expense as much as $250,000 of new or used section 179 property purchased during tax year 2008, up from $128,000, in 2007.

Taking advantage of these provisions can help contractors free up capital while investing in increased efficiency and productivity. Your accountant or tax advisor can help you make the right choices to boost your business.  

Please note that this information is provided by Caterpillar and Peterson as a public service announcement to the owners of contracting businesses and is not to be construed as tax advice or a promise of potential tax savings or reduced tax liability. For more information about the depreciation allowance and section 179 expensing, consult your tax professional or visit the Internal Revenue Service online at irs.gov. Additional information may also be found at depreciationbonus.org, a website sponsored by the AED.