Business

<< Previous   of   Next >>   ADVERTISEMENT   CONTACT THE HERALD Mike Benbow, Business Editor benbow@heraldnet.com   Published: Friday, October 31, 2008 Overall business plan dictates capital purchase decisions for small firms Slow times can force small firms to delay buying big-ticket items and forgoing a huge tax break. By Joyce Rosenberg When Congress passed the economic stimulus package back in February, the measure contained a huge tax break for small businesses, dramatically increasing a popular deduction on equipment purchases. Now, with a faltering economy, many companies are likely finding they have to forgo the deduction because they can't afford to buy or finance a vehicle or computer gear. "People aren't pulling the trigger on large capital purchases," said Jeffrey Berdahl, a certified public accountant with Berdahl & Co. in Center Valley, Pa. "Businesses don't have good cash flow or cash reserves, so they're probably having to postpone purchases." The tax break came in the form of near doubling of what's called the Section 179 deduction, which rose to $250,000 from $128,000 for 2008. The deduction, named for a provision of the Internal Revenue Code, is aimed at small businesses and allows them to deduct up-front the cost of certain kinds of equipment rather than depreciating the purchases over a period of years. At this point in the year, accountants are usually urging clients to take advantage of the deduction, which can be used for items such as computers, office furniture, manufacturing equipment and cars or trucks. But they also counsel that the decision to buy equipment should always be made as part of an overall business strategy. "Look at 179 and depreciations and capital outlays as economics first and tax second," said Mark Toolan, a certified public accountant in Exton, Pa. "You're not going to go out and buy it (equipment) because you save on taxes; you're going to go out and buy it because you need it." Shira Weiss, who owns a Teaneck, N.J.-based public relations firm, has scaled back her buying plans. "Because of the economy, I'm trying to stick with the things I need," said Weiss, chief executive of Weiss Media Group Inc. She'll buy just a scanner and a fax machine for now, and is putting off an iPod purchase. "We do want to be able to write off expenses," Weiss said, but added, "we're being extra careful." It's not yet known if Congress will approve an extension of the increase in the deduction for 2009, but even if lawmakers decide not to, businesses should still be able to deduct purchases up to around $130,000, itself a sizable amount. "If you don't have the taxable income in 2008 and you're looking ahead and you feel things are looking up in 2009, there's no reason in the world why you can't wait," Toolan said. You might think that prices on equipment look good now. But with some economists forecasting a weak economy through next year, it's very likely that you can still get a good deal after Jan. 1. Some businesses don't have a choice: The old equipment has broken down again and is beyond repair, and they can't make money without it. Still, they may want to consider not buying. "If they don't have credit or cash to buy something, another option is just leasing," Berdahl said. "You get to write the lease payments off," and take a deduction for those expenses. They are not deductible under Section 179, however. Owners who are concerned about not being able to get a loan to buy equipment should explore whether a bank or other lender would be willing to use the equipment as collateral. And some vendors, especially those whose own sales are sagging, may be willing to finance a purchase. If you believe you can still take advantage of the Section 179 deduction for 2008, you can learn more about it in IRS Publication 946, How To Depreciate Property. It can be downloaded from the IRS Web site at www.irs.gov. But beware, if you decide to use the deduction, you must expressly elect to take it on IRS Form 4562, Depreciation and Amortization. A few more caveats: Air conditioning or heating units, or structural parts of a building such as replacement windows cannot be deducted under Section 179. Regular depreciation rules apply for such purchases. Also, you must buy the equipment and place it in service by Dec. 31 to qualify for the deduction. You don't have to pay for it, however, by the end of the year. You also can use the deduction for a purchase, such as a car, that will be used in part for the business, but more than half its usage must be for company purposes. Joyce Rosenfeld writes about small business issues for the Associated Press. READER COMMENTS Be the first to comment. You must be a registered user and verify your e-mail address to post comments to blogs or articles on HeraldNet. To register, click here. To read other terms and conditions, click here. Log out

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