Economic Stimulus Act Aims to Help Small Business

As part of the $145 billion economic stimulus package passed in February, many Americans will receive checks for up to $600 for an individual or $1,200 for couples, with an additional $300 for each child younger than 17.

H.R. 5140, the Economic Stimulus Act of 2008, is intended to kick-start the nation’s lagging economy through consumer spending.

The checks going out to individuals have received considerable news coverage. Another part of the package that hasn’t been touted quite as much aims to benefit another vital area of the economy: small business.

For 2008, some businesses will be able write off nearly double the amount they could a year ago for new equipment purchases.

The expensing limit for IRS Section 179 deductions was raised from $128,000 to $250,000, said Tim Johnson, CPA and manager with BKD LLP in Little Rock.

In addition, bonus depreciation has been brought back.

“The Act provides for bonus (accelerated) depreciation by allowing a bonus first-year depreciation deduction of 50 percent of the adjusted basis of qualified property placed in service after Dec. 31, 2007, and, generally, before Jan. 1, 2009,” according to an e-mail from Johnson.

The deduction could be very beneficial to business owners who are considering purchasing new vehicles, computers, printers or expensive pieces of machinery or equipment, Johnson said.

But one should never buy equipment solely for a tax write-off, said Kendall Powers, tax partner with Moore Stephens Frost PLC in Fayetteville.

If a business owner was considering making a purchase and knew he or she would have to buy a piece of equipment, then it might be beneficial to purchase it before the end of the year, Powers said.

Likely Impact of Checks, Tax Deductions Varies

A business owner should only make significant investments on equipment if there is a high probability of seeing a good return, said Linda Nelson, district director for the Small Business Administration in Arkansas.

Because of tightening credit availability, borrowers should seek a long-term note when purchasing equipment. Stretching out the amount of time to pay back a loan can help manage cash flow, Nelson said.

SBA-backed loans are good for borrowers and banks. Many banks increasingly turn to the SBA during an economic downturn, because a portion of each loan is guaranteed by the administration, she said.

By their nature, some small businesses will be more likely to benefit from extra dollars in consumers’ pockets.

The stimulus checks will probably be a good thing for Fred Lockett, owner of Audio Express in Fayetteville. Though he does some home audio installation, Lockett focuses primarily on vehicle systems.

He usually sees a spike around the time people are receiving their tax refunds, and expects the same of the stimulus checks.

“I think it will help for that small period of time and then go right back to the way it was,” he said.

Despite the increased deductions, some business owners probably won’t take advantage of them.

“With the economy the way it is, we’re probably not going to buy any additional equipment this year,” said Jeff Hunter, owner of Professional Landscaping in Springdale.

“Our business is still very good, but I’d say fuel costs are my largest concern right now,” he said.