A lot of business owners and IT execs I know have the same reaction when it comes to the Federal Stimulus Package of 2009:
“Meh.”
That’s because, unless you are in one of the industries earmarked for funding, such as construction or green tech or transportation, there aren’t a lot of provisions in the Stimulus bill to help smaller businesses specifically.
So it would be easy to dismiss the Stimulus bill. But if you did, you’d be missing out on 2 key provisions that can bring your company a real competitive advantage.
If you pay attention to nothing else, get familiar with the Section 179 deduction and the bonus depreciation rules.?The Benefits
These are two marvelous tax provisions. You’re probably thinking: “marvelous” and “tax” – what an oxymoron!
Well, you be the judge: - Section 179 of the Federal income tax code allows you to write off certain expenditures in a single calendar year, instead of depreciating them over a number of years – giving an immediate tax benefit for 2009. Businesses can deduct up to $250,000 for purchases of equipment, including computer hardware and off-the-shelf (i.e., non-custom) software, in 2009.
- To the extent that you cannot take the Section 179 deduction, you may be able to claim a bonus first-year depreciation of 50% of the remainder of the cost of the items purchased.
The beauty of these two provisions in the Stimulus bill? They give small and midsize businesses extra incentive to invest in themselves by buying servers, desktop computers, software and the like. You take larger tax write-offs for the year in which you make your purchases, instead of spreading those write-offs out over several years.
Here’s how I like to look at it: the software and servers and other computer equipment end up costing you significantly less after you factor in the accelerated tax benefits.
Think of it as the government subsidizing your IT purchases.
Go here to see an example of the Section 179 deduction and bonus depreciation in action. There’s also this online Section 179 calculator, where you can quickly calculate the net cost of equipment after tax deductions.
(And if you’re really a glutton for punishment, er.., hungry for information, visit the IRS website – more at this IRS update, too.)
Gaining Competitive Advantage
Right now as I write this (mid-March 2009) many businesses are cutting back. But respected entrepreneur and Inc columnist Norm Brodsky reminds us that recessions are temporary. Growth will come back.
Smart aggressive businesses are getting in position to catch the upswing in the economy. A number of economists are suggesting a recovery could start in late 2009.
While your competitors are gnashing their collective teeth and wringing their hands over the economy, you can be quietly gearing up for when the economy starts expanding again.
So take advantage of this time and the special Stimulus provisions in place through December 31, 2009, to make purchases at much lower effective costs due to the tax benefits.
I’ll leave you with one final piece of advice: talk to your finance team or your tax accountant today. Each company’s circumstances are different and the Section 179 rule has a number of requirements. Get qualified tax advice tailored to your company. It will help you make smarter moves in the marketplace. 
