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Small Businesses Can Benefit From Economic Stimulus Plan

Aug 24, 2008
The economic stimulus plan has generated a lot of conversation in the last few months. Now that the plan has passed, what does it mean to small business? Really, quite a bit, as the new benefits of the new provisions are significant.

Although individual tax rebates are the main point of the plan, other provisions which intend to increase creation of jobs offer business tax incentives which small businesses should have a look at. Although some economists have cast doubts on the overall effectiveness of stimulus plans for improving the overall economy, the benefits to small businesses are apparent, and your business should make the most of the offerings.

It's clear that for a government or a business, it is important to take in at least as much revenue as it spends. The incentives offered make business spending easier by reducing the tax burden associated with these expenses. The most important impacts could be the new provisions regarding depreciation and equipment. The stimulus package has two main points that directly affect small businesses:

Congress has raised the amount which small businesses can write-off for 2008 investments by 100%, from $125,000, to a quarter million. In other words, an additional $125,000 can be written-off immediately instead of depreciating over time. In addition, it raises the cap on businesses which are included, raising the level of total sale value up to $800,000. This figure is significantly raised from the previous level of half a million dollars.

Another factor in the stimulus plan is referred to as, 'bonus depreciation,' or 'accelerated depreciation.' This provision lets small businesses invest in new equipment and write-off half of the costs in 2008.

For example, if a business pays three-quarter million dollars on new equipment in '08, it is allowed to completely write of the first quarter-million, as per provision one. The remaining amount could then be written-off at 50%, leaving the remaining quarter-million for depreciation. So - the initial $250,000 is a write-off, and the next $250,000 as well; add on the depreciation in the first year, $25,000, for example. If a business doesn't spend more than $250,000, it is able to write-off the entire amount, eliminating the need to maintain depreciation records for the following five to seven years.

Many business owners will be granted a full deduction for their normal purchase expenses for items such as machines, equipment, cars, etc.. Usually the deduction is allowed even if the purchases are fully or partially financed. This could be an excellent time for your small business to invest in Internet technology infrastructure.

The ultimate value to small business will be lowered taxable income and a smaller tax burden. Businesses are encouraged to make investments now, as opposed to waiting several years. When adding the indirect benefits of consumers spending their rebates, and the scenario which the economic stimulus plan creates looks bright. While not perfect, incentives for businesses and consumers to spend more adds more confidence in the markets, and could help to defray some of the effects of the current economic downturn.
About the Author
Nick Pegley is VP of Marketing at All Covered Inc, the only nationwide information technology (IT) services company focused solely on enabling the success of small businesses.
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