Why NOW Is A Great Time To Buy…
2008 Economic Stimulus Package Aids Businesses
In Purchasing Capital Equipment
St. Louis, MO. . .Diagraph, a leading manufacturer and distributor of marking, coding, labeling and RFID systems, is educating our customers and prospects on why NOW is a great time to buy.
Most companies are watching Wall Street and looking at internal improvements, cost reductions, ROI, etc. and Diagraph believes that we can help them achieve their goals. For capital expenditure projects that have been slated for 2008, but have been considered being postponed due to economic conditions or threats, news from the White House provides good reason why it may make more sense to make those purchases NOW, rather than later.
On Feb. 13, 2008 - President Bush signed H.R. 5140, the Economic Stimulus Act of 2008*. In addition to providing stimulus payments to individuals, it provides tax benefit incentives to businesses. These incentives include two provisions: an increase in the small business expensing limitation for tax years beginning in 2008 and/or a special 50-percent depreciation allowance for 2008 purchases.
Provision #1: Section 179 Expensing*
In general, a qualifying taxpayer can elect to treat the cost of certain property as an expense and deduct it in the year the property is placed in service instead of depreciating it over several years. This property is frequently referred to as section 179 property, after the relevant section in the Internal Revenue Code.
Under the new law, a qualifying business can expense up to $250,000 of section 179 property purchased by the taxpayer in a tax year beginning in 2008, up from $128,000 previously. (The $250,000 amount provided under the new law is reduced if the cost of all section 179 property placed in service by the taxpayer during the tax year exceeds $800,000).
AND/OR, provision #2
Provision #2: 50-Percent Special Depreciation Allowance*
Depreciation is an income tax deduction that allows a taxpayer to recover the cost or other basis of certain property over several years. It is an annual allowance for the wear and tear, deterioration or obsolescence of the property.
Under the new law, a taxpayer is entitled to depreciate 50-percent of the adjusted basis of certain qualified property during the year that the property is placed in service. This is similar to the special depreciation allowance that was previously available for certain property placed in service generally before Jan. 1, 2005, often referred to as “bonus depreciation.” To qualify for the 50 percent special depreciation allowance under the new law, the property must be placed in service after Dec. 31, 2007, but generally before Jan. 1, 2009. To reflect the new 50-percent special depreciation allowance, the IRS is developing a new version of the depreciation and amortization form for fiscal year filers. The new form will be designated as the 2007 Form 4562-FY.
Provision #2 Example**
Let’s take a look at an example of how a company purchasing capital equipment may benefit from this Economic Stimulus Package.
The example illustrates the difference prior to the Stimulus Package, and with the Stimulus Package now in place. Here’s the criteria we’ll use: ABC Company purchases $24,000 of equipment that qualifies as eligible property, they are in a 30% tax bracket, and they do a straight-line depreciation over 5 years:
Prior to Economic Stimulus Package
For a $24,000 piece of equipment, ABC Company would depreciate $4,800 in years #1 through 5, and their tax savings on the depreciation would be $1,440 ($4,800 x 30% tax bracket) in years #1 through #5.
With Economic Stimulus Package
For a $24,000 piece of equipment, ABC Company would depreciate $12,000 in year #1 (50% special depreciation allowance), and $3,000 in years #2 through 5. The depreciation of $12,000 in year #1 brings a tax savings of $3,600 ($12,000 x 30% tax bracket) and $900 ($3,000 x 30% tax bracket) in years #2 through 5.
Summary
With or without the Economic Stimulus Package, ABC Company’s tax savings over 5 years remains the same (in this example it would be $7,200). The key difference is that companies save more tax dollars immediately, (in year #1), instead of it being evenly recovered over 5 years. In our example, ABC Company saves an additional $2,160 ($3,600 minus $1,440) in year #1. And the more money that businesses can put in their pocket today to invest in additional capital purchases or create new jobs is the key benefit of this Economic Stimulus Package.
NOW Is The Time…
This growth package will protect the health of our economy by putting money back into the hands of American workers and businesses. The agreement offers incentives to spur business investment, by saving businesses approximately $50 billion in near-term taxes through this temporary change to the tax code.
Diagraph believes that if our customers and prospects have a capital expenditure project planned for 2008 and considered postponing it; this news should make them reconsider. It may be smart to do it NOW rather than later, not only for the tax savings incentive, but especially if…
- the project will have a cost benefit. For example, will it provide a savings of 10% per production line?
- the project will provide throughput improvement. Will there be increased “up time” or run time? Every minute that a production line is down is costing the manufacturer money.
- the project will add value to the existing production lines.
Food & Beverage manufacturers are in one of the most stable, mature markets in industry. The growth is under 5% and the making, packaging, packing and shipping of the food and beverage we consume everyday is not that much different month to month. Some tweaks may occur, but these manufacturers have their processes down to a science. So really, the art is in helping them with their systems that they rely on to meet the demands of the supply chain. Diagraph is focused on providing solutions that will provide cost benefits, improve throughput and add value. And that coupled with the news of the tax savings, should help manufacturers realize that NOW is a great time to buy.
For more information on marking, coding, labeling and RFID systems, call Diagraph at 800-722-1125, send e-mails to [email protected], or visit us on the web at www.diagraph.com.
Diagraph, a division of Illinois Tool Works Inc., has been in the product identification industry for over 100 years and manufactures and distributes automated industrial coding and labeling systems and supplies. Primary product lines include: small character ink jet systems, large character ink jet systems, automated labeling systems, and Radio Frequency Identification (RFID) Systems.
# # #
*For specific information regarding the Economic Stimulus Act of 2008 and more information on the tax savings benefits, please visit the Internal Revenue Service website at www.irs.gov and always consult your company’s Controller and/or your tax professional.
**This example is for illustration purpsoses only. For exact tax savings for your capital equipment purchases, please consult your company’s Controller and/or tax professional.