While the highlight of the Economic Stimulus Act is often seen as the upcoming rebate checks, the act also provides many valuable advantages to businesses. In case you missed our earlier e-blast on the topic, here's a quick rundown of what you need to know about the Economic Stimulus Act.
Rebate Checks to Individuals
Here’s a breakdown of rebate checks to be received by individuals with at least $1 of tax liability in 2007 or $3,000 in qualifying income.
· Single taxpayers will receive a tax rebate up to $600
- The amount of this rebate will be reduced by 5 percent of the amount that the individual’s 2007 adjusted gross income (AGI) exceeds $75,000
- The minimum rebate $300
· Joint filers will receive a tax rebate up to $1,200
- The amount of this rebate will be reduced by 5 percent of the amount that the couples’ 2007 AGI exceeds $150,000
- The minimum rebate is $600
· In addition to these amounts taxpayers will receive $300
per child under the age of 17
- These rebates will also be phased out at 5% of AGI in excess of $75,000 ($150,000 joint).
Tax Benefits to Business
For assets put into service by business owners in 2008, business owners can elect to expense up to $250,000 (increased from $128,000) of qualifying property instead of taking depreciation.
The $250,000 maximum amount that can be expensed is reduced dollar-for-dollar if qualifying property in excess of $800,000 (increased from $510,000) is placed in service in a taxable year beginning in 2008. For taxable years beginning in 2009 and thereafter, the prior limitation amounts continue to apply.
Bonus Depreciation
An additional benefit of the act is that now businesses are allowed a 50% bonus depreciation on assets placed into service in 2008. This includes tangible property with a recovery period not exceeding 20 years, purchased computer software, water utility property and qualified leasehold improvement property.
Example
Here’s an example of how these new tax benefits can be calculated:
· A $500,000 asset is placed into service in 2008
· $250,000 may be expensed under Section 179
· $250,000 remains to be depreciated
· A further $125,000 may be expensed as Bonus
Depreciation (50% of $250,000)
· Asset now has a $125,000 base from which to take
standard 1st year depreciation
· For this example we’ll assume 5-year property = $25,000
1st year depreciation
· Total deduction in 2008 is $400,000 on the asset
· Remaining $100,000 cost of the asset is recovered under
the otherwise applicable rules for computing depreciation
Please contact us at 440-449-6800 with any questions you may have regarding these new regulations.