Sheltered from credit crunch, some small businesses see tax relief as chance to grow
17:58 ET, Fri 25 Apr 2008
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By Deborah Cohen
CHICAGO (Reuters.com) -- At a time when costs are up and many businesses are tightening their belts, John Nicholson is planning to spend up to $40,000 to overhaul the computer system in his family-owned flower shop.
CHICAGO (Reuters.com) -- At a time when costs are up and many businesses are tightening their belts, John Nicholson is planning to spend up to $40,000 to overhaul the computer system in his family-owned flower shop.
Nicholson (pictured left) joins small business
owners around the country who are cashing in on a tax incentive in this year's
economic stimulus package. The benefit temporarily doubles the expensing limits
on many kinds of equipment and related investments to $250,000; it also allows
the full amount to be written off in 2008, rather than over a typical multi-year
tax depreciation schedule.
"With this tax thing, I can expense it in one year, get it off my books faster," says Nicholson, a retired government lobbyist who along with his wife, Marnie, runs Company Flowers, a million-dollar business in Arlington, Virginia. "From that standpoint, it's certainly going to help."
Nicholson has primarily relied
on credit cards to finance the business. Yet the benefit provides an
incentive to take on a bank loan, he notes. He is counting on the new equipment to make
him more competitive by eliminating old-fashioned receipts; among other
improvements, his driver will use a hand-held device that electronically
confirms when a delivery is made and sends that information back to a computer
in the store.
It's this type of investment that
legislators hoped for when they included the provisions in the $168 billion
Economic Stimulus Bill of 2008, which was signed into law on Feb. 18. Elsewhere
in the country, small to mid-sized companies across a variety of industries are
gearing up to make operational improvements that range from new trailers for
hauling goods to equipment for manufacturing and
construction.
"A similar thing was done in the
economic stimulus bill of 2003 and the results were pretty good," says Bill Rys,
tax counsel for the Washington-based National Federation of Independent
Business, which worked to get the legislation passed. "We did see an increase in
the number of businesses that claimed the expense deductions. "
Some want
more
While the tax provision applies to
all businesses, its $250,000 temporary cap makes it ideal for smaller companies.
Businesses that exceed $800,000 in investments are penalized at the rate of $1
per write-down over the limit.
For example, if a manufacturer
bought $900,000 worth of new equipment this year, $100,000 of that purchase
would work against the $250,000 deduction allowed for in 2008, reducing the
eligible write-down to $150,000.
And while financing has stalled on
Wall Street, NFIB's recent monthly data suggest that small companies have yet to
suffer from the lending meltdown, a sign that these tax provisions may indeed be
able to help to jump-start spending by independent
companies.
"For the eighth straight month since the Federal Reserve declared the existence of a 'credit crunch,' no evidence of credit problems has appeared on Main Street," NFIB says in its Small Business Economic Trends for April.
Regular borrowing activity in March
was reported by 33 percent of the owners NFIB polled, down only one point from
February and in line with patterns of the last five
years.
Even so, not everyone is satisfied with the extent of the special 2008 expensing provisions. The economic stimulus legislation does not include capital improvements such as property, which still must be depreciated over a 39 ½-year schedule, a time frame some business owners say is unrealistic for the life of today's buildings and grounds, which often need more frequent refurbishment.
New York Rep. Vito J.
Fossella (R-13th) on April 24 introduced a bill to extend the write-downs. H.R. 5906, The
Small Business Capital Expansion and Improvement Act, would broaden the spending
provisions under Section 179 of the tax law to include capital improvements such
as property for businesses with $5 million or less in gross
receipts.
"Unfortunately, current law does not offer tax incentives for small
employers to expand their businesses by making capital improvements," Fossella
told Reuters via e-mail. "This bill will encourage small employers to make
capital investments to grow their businesses."
Owners like Allen McBride, the
third-generation operator of Camp Mac, a children's summer camp in Munford,
Alabama, says such a change would be welcome news.
"I think it would be huge stimulus for the local economy," says McBride, who is currently adding a new cabin for one of his permanent staff members at the cost of $80,000. He would also like to build a covered arena for a third horseback-riding ring under construction, but views the cost as prohibitive in the near term.
"Fuel costs are going up," he says. "Our food bill alone is over $100,000 a year."
(Deborah Cohen covers small business for Reuters.com. She can be reached at smallbusinessbigissues@yahoo.com)
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