Small businesses were also the beneficiary of tax incentives in the recently passed economic stimulus package.
The big one for small businesses is the doubling of the Sec 179 expensing to $250,000. Under Sec. 179, businesses can expense capital expenses in the current year up to $125,000, rather than having to depreciate these items. For 2008, a business can deduct up to $250,000 in such expenses. However, there is a phase-out – companies who spend more than $800,000 in capital expenses find the amount that they can deduct reduced dollar for dollar. Note that this phase out is based upon capital expenses, not the revenues of the company.
This, of course, is a great bonus if you have been looking at significant capital expenses. You don’t have to use cash to pay for the expenses – you can take out a loan. From a cash flow perspective, you can plan out a loan so that the cash needed for the loan repayment is close to the depreciation amount each year.
There are one or two other provisions that may offer incentives in limited circumstances.
What to do? First, call your accountant and discuss this option and how it will work in your specific circumstances. If you can take advantage of it, gather up your manager (and team, if you have one) and draw up a list and approximate cost (including setup, installation and training, as needed). From here, you can make investment decisions, taking into consideration projected cash flow and revenue for 2008 and 2009.
Which of course brings us back to the Yo-Yo Medicare Reimbursement Act of 2008. We may be looking at a 10.6 percent drop in the current Medicare rate come July 1. I would postpone some expenses until the reimbursement situation is settled for the second half of the year.
The incentive offers an opportunity for practices, but tread with a plan and forethought. Put together a plan and work with your accountant and consultant (as needed) to make it happen.