Business Corner

Small business to benefit from finalized economic stimulus bill

The economic stimulus legislation signed by President Bush in February will give small business owners extra cash in their pockets and make it more cost-effective to buy equipment, expand their businesses and hire more staff.

The stimulus features some incentives for the business community, including one especially designed for small businesses: an increase in the small business Section 179 “expensing limitation” for the current and later tax years. This applies to the amount that small businesses are allowed to deduct for purchases of certain equipment, machinery and other items in the first year such items are purchased and used, versus amortizing the cost out over several years.

The maximum has risen under the stimulus package to $250,000 for 2008 -- the highest level ever. Otherwise, it would have been capped at only $128,000, according to the IRS. However, this $250,000 limit is reduced if all of this type of property that is put into service during the year exceeds $800,000.

“This provision will allow small business owners to immediately write off business purchases and will help them expand their businesses and hire new employees,” said Mike Diegel, national media director for the National Federation of Independent Business, one of the groups lobbying for the provision.

Another provision in the package is a 50 percent bonus depreciation deduction. “This proposal provides an additional one-year depreciation deduction value to 50 percent of the value of the property purchased by a small business,” Diegel explained. “Bonus depreciation is an incentive for businesses to invest in their business now, providing an immediate deduction for half the cost of the investment.”

Other groups were pleased, such as the National Small Business Association, the National Retail Federation, the National Association for the Self-Employed, the Business Roundtable, the National Business Association, the National Association of Realtors, the Mortgage Bankers Association, and the U.S. Chamber of Commerce.

However, the Small Business & Entrepreneurship Council wasn’t exactly thrilled. “An expensing measure that will provide small businesses more incentive to invest in their firms may prove to be somewhat useful, but overall, political leaders are missing a golden opportunity to give the economy convincing and powerful tools that will have lasting value,” the group said.

“The stimulus deal will do little for the economy. In particular, tax rebates never work because they fail to deal with incentives for working, investing and entrepreneurship. Meanwhile, the measures aimed at business are temporary, and too targeted,” said SBE Council Chief Economist Raymond Keating, regarding the package.

Poll Finds Modest Expectations

In late February, Discover Financial Services issued the results of a poll of 1,000 small business owners with five or fewer employees. Of those polled, 59 percent said they expected the stimulus package would not have a significant impact on their business. Only 12 percent said they anticipated a significant impact, while 29 percent indicated they couldn’t say.

Stimulus checks are expected to start going out in May. “Payments will be largely completed this summer, putting cash in the hands of millions of Americans at a time when our economy is experiencing slower growth,” said Treasury Secretary Hank Paulson.

Not everybody in Washington, DC, was pleased. U.S. Sen. Chuck Hagel, R-NE, said, “This economic stimulus package is wrong-headed, short-sighted and will only drive our country deeper into debt and continue to perpetuate this irresponsible mantra of spend, spend, spend...Flying over America dropping rebate checks that we can’t cover doesn’t solve anything. This isn’t free money.”

Also, the National Taxpayers Union said the package favors “wealth redistribution over true economic expansion.”

The IRS expects more than 130 million Americans to receive stimulus checks, as much as $600 for individuals and $1,200 for married couples (filing jointly) -- with $300 additional for each dependent child.

A second economic stimulus package is being discussed on Capitol Hill, much of it mortgage-related. However, President Bush said a second stimulus is needed and that would oppose any tax increases to pay for it.

Reprinted from Central Vac Professional, May 2008