If the high cost of implementing your new software system is preventing you from making the purchase right now, this may change your thinking! This tax incentive could significantly lower the actual cost of your new CRM and/or ERP system.
HR Bill 5140, What does it mean?
- The key addition affecting small businesses is an expansion of “bonus depreciation” which allows investments in tangible property, computer software, or improvements to leased property to be more speedily depreciated, adding to a business’ tax savings. Businesses of all sizes will be allowed to depreciate in this tax year 50% of the cost of an asset put into use in 2008.
~Fortune Small Business
The Economic Stimulus Act of 2008 provides US corporate taxpayers the ability to take additional depreciation on qualifying property that is purchased and placed into production during 2008
– Rapid depreciation = improved tax savings
– Makes new investment opportunities more profitable and attractive
– Because this provision is for 2008 only, software purchases may be especially attractive to many IT departments and CFOs
- – The 2008 timeframe for purchase and stipulation that it must be placed into service during 2008 will create a sense of urgency for customers to accelerate their purchase
- – 168(k) Allowance – This is the “Bonus Depreciation” allowance for 2008 – applies to any business regardless of the amount spent on qualifying assets in 2008
- – Allows a business to immediately expense an additional 50% of the cost of qualifying assets purchased in in 2008
- – Section 179 – Depreciation allowed Increased from $128K to $250K
- – Applies to all businesses who purchase less than $810,000 in qualifying assets
- – Threshold amount increased from $510K to $810K
- – Small to mid-size businesses are able to take advantage of either the new rules governing 168(k) or Section 179
- – Expense or Depreciate
EXAMPLE: XYZ Company purchases accounting software for $24,000
- – If XYZ Company is making less than $800K in capital purchases in 2008, they can expense the item immediately — reducing their tax liability – as long as they do not expense more than $250k for the year.
- – If XYZ Company would rather spread the expense over multiple years by depreciating the asset (software), they can take advantage of the new 168(k) 50% Bonus Depreciation rules:
- – $24,000 original cost of asset
- – 50% deducted immediately
- – $12,000 remaining cost will be depreciated over life of asset
- » 3 Year Life @ $4,000 per year
- – Total Depreciation = $16,000 vs. $8,000 without the Economic Stimulus Act
RAPID DEPRECIATION = LOWER TAX LIABILITY