SMB Software Vendors Look to Economic Stimulus Act of 2008
Far be it for me to offer anyone advice on their taxes. Lucky for us R. Ray Wang has done the due diligence and reports in his blog for May 19, 2008 that the Economic Stimulus package signed by President Bush this past February contains two (2) provisions that may spur the purchase of software to the SMB marketplace. He identifies these 2 opportunities at tax savings as follows:
• “Bonus depreciation”: SMB purchasers of software can forgo the 5 year straight line write-off for depreciation and take a full 50% depreciation expense in the first year.
• “179 deduction increase”: The annual purchase of such capital qualifying for such a deduction has been increased from $500,000 to $800,000 with an increase in the deduction allowed for such qualifying purchases by SMB’s from $125,000 to $250,000.
For those of us not up to speed on what a 179 deduction is, Wikipedia provides this brief description:
Section 179 of the United States Internal Revenue Code (26 U.S.C. § 179), allows a taxpayer to elect to deduct the cost of certain types of property on their income taxes, as an expense (rather than requiring the property to be capitalized and depreciated). This property is generally limited to tangible, depreciable, personal property which is acquired for use in the active conduct of a trade or business. … The 179 election is NOT mandatory, and the equipment may be depreciated according to sections 167 and 168 if preferable for tax reasons. Further, the 179 election may only be taken in the year the equipment is placed in use and is waived if not taken in that year. However, if the election is taken, it is irrevocable unless special permission is given.
As a non-tax expert, it appears that the above items allow for a faster write-off of the expense (i.e. purchase of the software). The conventional thinking is the more one is allowed to expense, the lower the taxable income. This should provide an added incentive to the SMB purchaser to complete the purchase, however, as Wang emphasizes, the software must be deployed this year in order to take advantage of the additional tax savings.
