After all of the in-fighting, the American Recovery and Reinvestment Act was passed and signed on February 17, 2009. This act covers a multitude of benefits and money for many governments, businesses and individuals for 2009 and 2010. ICT (IP Communications Technology) purchases will increase as a result.Some of the tax incentives that could stimulate ICT purchases are:
* Extension of bonus depreciation * Extension of the enhanced small business expensing * A 5-year carryback of small business Net Operating Losses (NOL) * Small business capital gains
So what does this all mean? Small businesses benefit considerably. The ICT industry may see more sales of their technologies to small businesses. This will help the industry weather the downturn in sales and may boost enough sales to keep vendors and VARs from bankruptcy.
The bonus depreciation is an extension of the 2008 Economic Stimulus Act. The 50% bonus is in addition to the regular depreciation. The faster depreciation helps in the near term but will also reduce the depreciation results in the future.
The 2008 Code Section 179 for expensing is also extended. This is available for new and used equipment. There is a ceiling of $800,000 that limits this to mostly small businesses.
The new law allows businesses to choose how far back they want to go--3, 4 or 5 years--to declare a Net Operating Loss (NOL) for any tax year ending in 2008. The normal NOL, 2 years for all businesses, will be in force for NOLs that occurred in 2009. What this means is that businesses claim a refund and get money back. The refund could be applied to ICT purchases that in themselves reduce business expenses.
So how would some of this work? Small business can expense up to $250,000 this year for new equipment. Let's assume a business wants to purchase $500,000 of equipment. This purchase would normally be depreciated over 5 years at $100,000 per year. With the Section 179 rules, the business could take the $250,000 expensing limit. The business could apply the 50% bonus depreciation to the remaining $250,000 as well. This covers $375,000 of the purchase leaving $125,000 to be depreciated over five years. The first year depreciation would be $25,000. When you add the $375,000 from the section 179 and the bonus to the $25,000 first depreciation, a total write off in 2009 would be $400,000 instead of the usual $100,000 depreciation. This is a big incentive to go out and purchase ICT technology.
The reason I wrote this blog was to encourage the technology oriented reader to discuss this with their C level executives, especially the CFO. By pursuing this early, the technologist may get faster access to the limited funds and could be first in line for the investment. These tax advantages could be applied to the ICT purchases with the tax benefits accrued by the ICT organization. This is also important for VARs to realize that these tax incentives can provide another argument to their customers to buy now.
