You probably know that the Economic Stimulus Act of 2008 was signed earlier this year and that it provided stimulus payments to individuals. But it also provides some key tax incentives for businesses, including builders and contractors. Construction Partner, a developer of accounting and estimating software solutions for the construction industry, has published guidelines for contractors and builders about how best to take advantage of the Economic Stimulus Act’s business incentives.
While clearly aimed at getting contractors to buy business software, the guidelines provide some helpful illustrations of some of the ways contractors can take advantage of depreciation deductions in 2008, courtesy of Kevin Thurman, a CPA and tax manager with construction accounting firm ThomasYork LLP, with whom the software developer consulted.
Available online and for download as a PDF at Construction Partner’s Web site, the guidelines cover property depreciation features of the 2008 Economic Stimulus Act, specifically Section 179 Expensing and the new 50-percent Special Depreciation Allowance (also called the bonus depreciation). Certain types of business purchases (such as software, company trucks and other vehicles, machinery, and other equipment) may qualify for these tax incentives. Thurman points out that both new and used equipment purchases can qualify for Section 179 deductions, while the 50-percent Special Depreciation Allowance applies only to purchases of new equipment.
In general, the tax code requires deductions on equipment purchases to be spread over several years, rather than taken all at once, but small businesses can benefit from the stimulus act’s tax incentives, particularly from expanded Section 179 provisions. According to Thurman, Congress recognizes small business owners may invest in equipment that they otherwise would not be able to afford had they not been extended tax incentives. Depending on the purchase price of the piece of equipment, “This section gives people the ability to get the deduction all in one year,” he says. (For specifics, refer to the guidelines.)
Business owners should note that while Section 179 deductions are allowed for purchases that fall within a company’s chosen financial year—whether following the calendar year or a fiscal year—the 50 percent Special Depreciation Allowance is only applicable to purchases made in calendar year 2008. “If a company is thinking about making an equipment purchase right now, they should make it by December 31, so they can take advantage of both Section 179 and the bonus depreciation,” Thurman advises. “If they wait until January 1, 2009, they will only get Section 179 deductions, and will miss out on a potentially huge tax deduction provided by bonus depreciation.”
Construction business owners should consult with a CPA or tax advisor who specializes in the construction industry. “I would encourage them to talk to their CPAs and make sure they’re going to benefit from [a purchase],” Thurman says. “You don’t want to make a purchase solely based on a tax benefit, because it’s not dollar-for-dollar trade-off. If you spend $200,000 on a piece of equipment, it doesn’t mean you’re going to save $200,000 on your taxes. Equipment purchase decisions have to first be based on the business needs of the company, not based on tax savings, although they are a factor.”
The Internal Revenue Service outlines the tax incentives for businesses set out in the 2008 Economic Stimulus Act, including new depreciation limits on different types of business vehicles (passenger cars, trucks, and vans). Visit the IRS’s Web site for details.
As always, exercising caution and thinking through large business purchases is advisable. Figuring out whether a business purchase would qualify for the stimulus act’s tax incentives is a job for a tax advisor or CPA who is well-versed in construction industry tax law, Thurman stresses.
