“If you need a machine and don't buy it, you ultimately find that you have paid for it, but don't have it.”
- Henry Ford - American Industrialist & Founder of Ford Motor Company (1863-1947)
Our economy has clearly shown resiliency and healing ability. Now that it has stabilized and begun to grow again many business owners are thinking opportunistically about the future. Although some business owners are still guarded, there is no question that the economic recovery is underway. Fears of a double dip recession have kept companies on the defensive but this stance has softened as the fears have proven to be unfounded. This is evidenced by second quarter statistics showing that capital spending finally began to outpace depreciation and maintenance costs, after trailing them during the recession.
The Small Business Jobs Act was recently passed into law. This bill aims to encourage small businesses to purchase equipment (new or used), to incentivize venture capital firms to invest in small businesses, and to motivate entrepreneurs to start their own business. Utilizing First Star Capital to purchase equipment through one of our term loans or equipment leases will allow your company to capitalize on these new tax breaks and incentives.
Although the bill is wide reaching with many different components, there are several provisions that are being heralded as timely and relevant because they create immediate tax breaks and incentives for the business community.
There are quite a few tax breaks, but here is a summary of five that have the most potential to positively impact the small businesses that are affected:
- 100% Exclusion of capital gains: The bill eliminates capital gains taxes on investments in qualifying small businesses. To qualify, a small business must be a C-Corporation (no LLC’s, S-Corp’s or Sole Proprietorships) with assets of less than $50 million. The investor must buy the shares directly from the company at “original issue” and must hold it for at least five years.
- Loss Carry Back provision extended to 5 years: When a business earns a profit, it pays income taxes on its earnings. However, if a business then shows a loss in later years, tax rules allow the business to “Carry Back” its loss and deduct the profits from earlier years. By filing an amended tax return for the earlier profitable year, the business can claim an immediate refund on the taxes that were previously paid. The bill lengthens the normal two-year “Carry Back” provision to five years.
- Increase of Section 179: “Section 179” of the tax code allows businesses to write off capital expenditures immediately rather than depreciating the asset over its economic useful life. This generates cash for a company quickly and is intended to motivate businesses to purchase equipment (software is included). The previous Recovery Act (American Recovery and Reinvestment Act of 2009) increased the Section 179 expensing limit to $250K. This bill not only extends the benefit through 2011 but also increases the limit to $500K (seewww.EconomicStimulusInfo.com for more details).
- Bonus depreciation extension: Businesses can also follow a depreciation schedule to recover the cost of capital expenditures by writing off the cost incrementally over a number of years. Temporarily (under the provisions of the ARRA - Recovery Act), businesses can front-load that deduction by writing off 50% of capital expenditures made in 2008 and 2009. This bill extends that first-year depreciation for equipment purchased through the end of 2010 (this will expire December 31st 2010 so time is running out).
- Help for start-up's: Currently, new companies can deduct up to $5K in start-up expenses (this amount is reduced by the amount that the start-up’s expenses exceed $50K). The new bill increases the deduction to $10K for 2010 and the deduction would be reduced by the amount that the start-up’s expenses exceed $60K.
Equipment leasing has always been exceptionally powerful during the fourth quarter. This is especially true in Q4 of 2010 due to the pending expiration of substantial tax benefits such as bonus depreciation. Choose First Star Capital as your funding partner in the 4th Quarter and this significant tax write off can be attained with minimalout of pocket expense – the deduction can be realized by making as few as one or two monthly payments before the end of the year. For more detailed information please visit: www.EconomicStimulusInfo.com or www.irs.gov
First Star Capital was funding new business throughout the entire economic downturn which is something we are proud of because not every lender can say this. Heading into the end of the year, what can we do for you?
* Given that every business is unique please consult your accountant or tax advisor for specific details relevant to your company.
Please visit us at www.FirstStarCapital.com
Brad Harmon, CLP
(800) 604-4817
info@firststarcapital.com
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