Stimulus plan could be big win for small firms

Savvy small-business owners will want to take a closer look at the economic-stimulus package signed into law by the Bush administration last week.

The $168 billion legislation package is aimed at jolting the spending habits of consumers and businesses by providing cash and incentives.

This may offer a double opportunity for small businesses.

Their customers will have some unexpected bucks to shop with, and it is likely that many of those dollars will be spent within the small-business community.

Small-business owners are in a much better position to adjust their marketing plans and take advantage of that consumer windfall than are the larger corporations.

Consumers should start receiving the rebates—by mail or direct deposit—through late spring and summer.

Additionally, the package includes two major provisions that directly benefit businesses:

Companies get a 50 percent bonus depreciation in addition to the standardized deduction on the remaining 50 percent.
For example, a business that purchases equipment worth $500,000 with a five-year recovery period for depreciation can now deduct $300,000 the first year (the 50 percent bonus depreciation of $250,000, plus the $50,000 which is 20 percent of the remaining $250,000). The rest would be depreciated at $50,000 per year during the next four years of the recovery period.

The Senate Finance Committee estimated that this portion of the package alone will provide nearly $44 billion in federal tax savings in the next couple years.

The allowable dollar amount for expensing nearly doubles—from $128,000 to $250,000—for small businesses with up to $800,000 in annual revenue (an increase from the previous $500,000 in annual revenue).
For many small-business owners, this will allow a 100 percent deduction for most of their normally expensed purchases such as office equipment, vehicles, machinery and the like.

In most cases, the deduction is allowable even if the items are wholly or partially financed.

The benefit to small business is a lower taxable income and the lowered tax burden as a result.

A side benefit to this package may go to the financial-lending community, which has seen much of its activity curtailed because of the existing credit crunch affecting the approval rates for marginal commercial loan applications.

Many of the businesses likely to take advantage of this package are profitable, credit-worthy businesses that can use the tax deductions.

Businesses can take the full deduction even when financing the equipment. It’s likely many will do just that.

One provision of note within the package is that a business has to be profitable to utilize the benefits from the expensing portion of the legislation. Because of this, many business owners will want to consult with their tax advisers before making major purchases.
Stu Neal is chief executive officer and principal of the SMN Consulting Group in Mechanicsville. He can be contacted at or visit his Web site at http://www.StuNeal.com.