Businesses can deduct $800,000 in capital expenses.
Hiring Incentives to Restore Employment (HIRE) Act of 2010 signed into law March 18 extends some of the 2009 tax incentives which encourage capital purchases, such as Assembly Automation Equipment and machinery.
The new law restores the limit on expenses that businesses can deduct from annual income for capital expenses to $250,000 with a total cap of $800,000. You may have heard this referred to as Section 179 of the tax plan. The expense limit was due to be reduced to $134,000 with a $530,000 cap this year, but the new law restores the deductions to 2008 and 2009 levels. Taxpayers must have taxable income to take advantage of the deduction. Deductions cannot be used to reduce taxable income below zero. Deductions are allowable even if the purchases are wholly or partially financed. This incentive particularly benefits small and mid-sized companies who have an opportunity to make investments that otherwise would be delayed or impossible to make this year.
The extended capital purchases tax incentive is part of an overall act which includes tax incentives for companies that hire new employees. The bonus depreciation on capital purchases portion of Section 179 has not been extended for 2010. Legislation is currently under consideration which may extend bonus depreciation for equipment placed in service before 2011. Capital investments by definition are undertaken with an eye on long-term expansion or upgrades to existing production capacity. If you are considering expanding a plant or making investments in equipment, the expense deduction provides help in paying for it by lowering your tax burden and improving cash flow. Companies that take advantage of the tax incentive early in the year may also get some benefits with their estimated tax payments as they make their financial plans for the year. It pays to take advantage early. With the increased deductible to $250,000 many packaging equipment solutions are fully deductible. Companies planning to take advantage of the new tax incentive should consult their tax planner to fully understand the benefits. For most companies considering a new equipment purchase should strike now, before the end of 2010. The opportunity to receive the value of new Assembly and Automation equipment, plus the added value and quicker ROI offered with the tax incentives.