Economic stimulus bill may encourage businesses to go tech shopping

Legislation includes tax breaks intended to spur purchases of capital equipment this year

The economic stimulus bill sent to President Bush this week by Congress includes several financial incentives that could help tech buyers.

Consumers, certainly, may put their tax rebates toward new PCs. But the really substantial benefits are contained in a pair of tax breaks that could save businesses tens of thousands of dollars on purchases of IT equipment this year.

One of the provisions in the $168 billion stimulus bill accelerates the first-year depreciation of capital equipment bought during 2008 to 50% of the purchase price, up from the normal level of 20%. A second provision, aimed at small and midsize businesses, increases the amount of capital equipment purchases that can be expensed as deductions on 2008 corporate tax returns from about $125,000 to $250,000.

"It's a tremendous incentive for people to buy now — it's as if someone put a for-sale sign on every asset," said Tom Ochsenschlager, vice president of taxation at the American Institute of Certified Public Accountants in New York.

But instead of a vendor giving the discount, he added, it's coming from the federal government. And, Ochsenschlager said, limiting the tax benefits to this year only "is Congress' way of yelling 'fire' in the theater — saying, 'You've got to do it now. You've got to stimulate the economy now.'"

If a company can combine the two tax incentives, the benefit might work for it like this: After buying $350,000 worth of computers, the company could expense $250,000 on its tax return, and take a depreciation deduction of $50,000 on the remaining $100,000 of the purchase amount.

In that case, the balance of the depreciation would be spread out in subsequent years, under a schedule that varies depending on the type of capital asset involved. For instance, the depreciation window on software is three years, said Ochsenschlager.

Bartlett Cleland, vice president at the Information Technology Association of America in Arlington, Va., said the tax breaks may encourage companies that have aging IT equipment to replace it now. It may also make new IT investments attractive for businesses that have been putting them off for cash-flow reasons, Cleland said.

The small business benefit may be particularly helpful, according to Cleland. "Small businesses rely on IT a lot heavier than some big companies do," he said. "Arguably, the encouragement to purchase would be greater in the small business situation."

This type of one-shot tax break isn't a new idea: The U.S. did something similar in 2001. But Ian Campbell, an analyst at Nucleus Research Inc. in Wellesley, Mass., said he thinks the circumstances are different for the tech industry now than they were seven years ago.

"In this downturn, more companies are recognizing the value of IT to help them increase productivity," said Campbell. He added that businesses now are more likely to view IT as a tool to help them survive in difficult times, and less likely to significantly cut their tech spending.

Copyright © 2008 IDG Communications, Inc.

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