At the beginning of the year, President Bush and Congress felt an urgent need to provide a business package to stimulate the economy.  What emerged earlier this month and signed into law on February 13, 2008 was the “Economic Stimulus Act of 2008,” or Public Law 110-185.   The new law includes two provisions which should help WMMA members promote and market woodworking equipment, cutting tools, and supplies.  The provisions provide additional tax incentives to potential customers to purchase equipment and place equipment into service this year.

DIRECT EXPENSING

Existing Law for Direct Expensing under Section 179

A taxpayer that satisfies limitations on annual investment may elect under section 179 of the Internal Revenue Code to deduct (or “expense”) the cost of qualifying property, rather than to recover such costs through depreciation deductions.  For taxable years beginning in 2008, the maximum amount that a taxpayer may expense is $128,000 of the cost of qualifying property placed in service for the taxable year.  The $128,000 amount is reduced (but not below zero) by the amount by which the cost of qualifying property placed in service during the taxable year exceeds $510,000. In general, qualifying property is defined as depreciable tangible personal property that is purchased for use in the active conduct of a trade or business. Off-the-shelf computer software placed in service in taxable years beginning before 2011 is treated as qualifying property.

While frequently referred to as “small business” direct expensing, there are actually no specific business size limitations.  It is available to businesses of all sizes.  Larger companies generally are not able to utilize it because their investments exceed the annual investment cap.

New Law for Direct Expensing under Section 179

For 2008 only, the expensing amount and annual investment cap are increased to $250,000 and $800,000, respectively. The $250,000 and $800,000 amounts are not indexed for inflation.

BONUS DEPRECIATION

  Existing Law for Bonus Depreciation

 A taxpayer is allowed to recover, through annual depreciation deductions, the cost of certain property used in a trade or business or for the production of income.  The amount of the depreciation deduction allowed with respect to tangible property for a taxable year is determined under the modified accelerated cost recovery system (“MACRS”). Under MACRS, different types of property generally are assigned applicable recovery periods and depreciation methods. The recovery periods applicable to most tangible personal property range from 3 to 25 years. The depreciation methods generally applicable to tangible personal property are the 200-percent and 150-percent declining balance methods, switching to the straight-line method for the taxable year in which the taxpayer’s depreciation deduction would be maximized.   

New Law for Bonus Depreciation  

For 2008 only, the new law provides for an additional first-year depreciation deduction equal to 50 percent of the adjusted basis of qualified property.  The additional first-year depreciation deduction is allowed for both regular tax and alternative minimum tax purposes for the taxable year in which the property is placed in service.  The basis of the property and the depreciation allowances in the year the property is placed in service and later years are appropriately adjusted to reflect the additional first-year depreciation deduction.  In addition, there are no adjustments to the allowable amount of depreciation for purposes of computing a taxpayer’s alternative minimum taxable income with respect to property to which the provision applies.  The amount of the additional first-year depreciation deduction is not affected by a short taxable year.  The taxpayer may elect out of additional first-year depreciation for any class of property for any taxable year.

In order for property to qualify for the additional first-year depreciation deduction it must meet all of the following requirements. First, the property must be (1) property to which MACRS applies with an applicable recovery period of 20 years or less, (2) water utility property (3) computer software other than computer software covered by section 179, or (4) qualified leasehold improvement property.  Second, the original use of the property must commence with the taxpayer after December 31, 2007.  Third, the taxpayer must purchase the property within the applicable time period.  Finally, the property must be placed in service after December 31, 2007, and before January 1, 2009.  The term “original use” means the first use to which the property is put, whether or not such use corresponds to the use of such property by the taxpayer.

The applicable time period for acquired property is (1) after December 31, 2007, and before January 1, 2009, but only if no binding written contract for the acquisition is in effect before January 1, 2008, or (2) pursuant to a binding written contract which was entered into after December 31, 2007, and before January 1, 2009.  With respect to property that is manufactured, constructed, or produced by the taxpayer for use by the taxpayer, the taxpayer must begin the manufacture, construction, or production of the property after December 31, 2007, and before January 1, 2009.

Property that is manufactured, constructed, or produced for the taxpayer by another person under a contract that is entered into prior to the manufacture, construction, or production of the property is considered to be manufactured, constructed, or produced by the taxpayer.

  In the past, the Direct Expensing and Bonus Depreciation tools have been used by members to successfully close an equipment, cutting tool, or supply sale.  Good luck to all in using these tools to increase your close ratio.   As always, the information provided herein is a summary only and is not intended to constitute legal or summary advice.  Please consult your tax advisor for further information; a specific example sheet using your products is always beneficial in illustrating the power of these tools and helping to close the sale for this year.

This article is from a WMMA Newsletter 

Weight: 2050 lbs
Dimensions: 62" (L) x 52" (D) x 72" (H)
Electrical Requirements: 208-230 Volt, 3 Phase, 30 Amp
Max. Material Width: 3-1/2"
Max. Material Thickness: 1"

• 15" Color Touchscreen with Industrial PC
  
• CNC Controlled X, Y, and Z axis
  
• 6 HP Miter and Tenon Spindle
  
• 3 HP Mortise Spindle
  
• X Axis Rack and Pinion
  
• Y Axis Rotary Screw and Nut
  
• Z Axis Rotary Screw and Nut
  
• Spindles on Common Toolplate
  
• 2 Working Zones
  
• Square Rail Bearings
  
• Douloi Multi Axis Controller
  
• Unlimited Program Storage

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• One fixed vertical clamp
  
• One mobile vertical clamp on roller bearings for effortless positioning
  
• One mobile horizontal clamp with a unique "gas spring" assisted lever for effortless centering
  
• Gas spring action is adjustable to 3 distinct settings relative to the operator's selected working height
  

• SDM+ featuring 1 additional vertical clamp
  
• SDM2 featuring 2 additional clamps and a central rail
  
• Small part inserts allowing the assembly of frames as small as 5-1/2" x 6-1/2"
  
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• 55" x 96" x 24" clamping capacity
  
• 3 counterweight balanced and 1 stationary dual pod pressure bar
  
• 25 second set-up / 30 second changeover
  
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