Friday, February 20th, 2009
Two small words: tax policy. Taken together — and often separately — they’re almost certain to induce consternation and angst. For most, tax policy is not…well…stimulating.
Even so, the recently enacted federal stimulus package contains some business-friendly items, and the potential rewards are worth venturing outside the mental comfort zone (where taxes don’t exist at all) and into a conversation with your company’s tax professional.
Sales forces would do well to explore some positive tinkering the new law has done with depreciation allowances. Basic tax law allows customers to recover (tax jargon for “write off”) the cost of capital purchases over an extended time frame. Most in the business community agree that this schedule is outdated, doesn’t reflect the rapid churn of the 21st century economy, and puts investment in the U.S. at a disadvantage in the globally competitive environment. The new law jump starts that write off schedule by allowing customers to immediately write off 50 percent of purchases. This so-called “bonus depreciation” is an incentive for customers to buy, and there’s more: since this particular aspect of the stimulus package expires at the end of 2009, there’s also an incentive for them to buy soon.
Another element of the new law enables smaller firms (gross receipts under $15 million) to better recoup taxes paid in earlier, more profitable times by allowing them to “carry back” losses for up to five years. That’s up from the normal two year allowance. We’re talking about the functional equivalent of a rebate, meaning qualifying firms can see near-term cash infusions at a time when cash flow is a particularly crucial. As an aside, with the ink still drying on this new law, SPI and others are already pushing for expansion of “carry back” in future legislation so that firms of all sizes can benefit.
More generally but nonetheless important, the stimulus plan seeks to bolster key plastics-consuming sectors. Home construction gets a boost with an $8,000 first-time homebuyer tax credit, and the auto industry benefits from a new tax deduction for buyers of new cars, light trucks, RV’s and motorcycles.
This short blurb (and probably blogs generally) shouldn’t be construed as tax law or accounting advice – just advice to get with your tax lawyer or accountant.