The economic stimulus package that President Bush signed into law last week is drawing attention mostly to its tax rebates for individuals, but the bill also contains several provisions that should benefit small and midsized companies.
The bill gives companies a 50 percent bonus deduction on new equipment and increases the limit on expenses that small businesses can deduct from annual income to $250,000, raising it from $125,000.
"The Section 179 expensing will help small businesses," said Mike Metz, executive vice president of tax services for RSM McGladrey. "Bonus depreciation will help midsized businesses significantly in terms of providing them with cash flow to expand their businesses."
He pointed out that if companies are considering expanding a plant or making investments in equipment, the stimulus package gives them help "from a cash flow standpoint" in paying for it. For an asset that was going to be depreciated over five years, the previous rules allowed 20 percent of that to be depreciated in the first year.
"Now they can write off 60 percent in the first year with the bonus depreciation," said Metz. "That makes it a much more attractive expenditure. I think companies are starting to make plans to do that. They are going to get some benefits with their estimated tax payments. They can build that into their financial plans for the year."
He noted that bonus depreciation does not apply to most real property, but that companies expanding their plants or building new plants can do a cost segregation study and depreciate tangible property such as electrical equipment and machinery over a shorter lifetime. "In a manufacturing building, a significant portion of it can qualify," said Metz.
