Congress extends the amount that small businesses may write-off for capital expenditures: $134,000!

Business owners who acquire equipment for their business: machinery, computers, and other tangible goods, usually prefer to deduct the cost in a single tax year, rather than a little at a time over a number of years. This deduction is known by its section in the tax code, a Section 179 deduction.

Under Section 179, businesses that spend less than $530,000 a year on qualified equipment, may write-off up to $134,000 in 2010. The rules are designed for small companies, so the $134,000 deduction phases out when a business purchases more than $530,000 in one year. (Companies cannot write off more than their taxable income).

Benefits of a Non-Tax/Capital Lease

The benefit of a Non-Tax/Capital Lease is that it can take advantage of Section 179: expense up to $134,000 if the equipment is put in use in 2010. In addition, you may depreciate any excess on the depreciation schedule for that asset. Examples of Non-Tax/Capital Leases include a $1.00 Buyout Lease, an Equipment Finance Agreement (EFA), and a 10% Purchase Upon Termination (PUT) Lease. Example: Assume you finance business equipment, put it in use in 2010, and take advantage of Section 179. Your tax savings could be significant:

                Tax Savings Example - Section 179 Deduction     

                Cost of Equipment:                                                                         $250,000.00

                Section 179 Deduction if Purchases are $530,000+             $                    - 

                (Dollar for dollar phase out if over $530,000)                       $134,000.00

                Section 179 Write-Off Amount:                                                  $134,000.00

                Regular First Year Depreciation Deduction:                          $23,200.00

                Total First Year Deduction:                                                           $157,200.00

                Cash Savings on your Equipment Purchase:                         $55,020.00

                (Assuming a 35% Tax Bracket, Depreciation 5 years)       

                Lowered Cost of Equipment after Tax Savings:                    $194,980.00

Tax Code Section 179 & Election to Expense Detail

The election, which is made on Form 4562, is for the tax year the property was placed in service or an amended return filed within the time prescribed by law. The total cost of property that may be expensed for any tax year cannot exceed the total amount of taxable income during the tax year. Section 179 property is property that you acquire by purchase for use in the active conduct of your business. To ensure property qualifies, reference Publication 946.

This expense deduction is provided for taxpayers (other than estates, trusts or certain non-corporate lessors) who elect to treat the cost of qualifying property as an expense rather than a capital expenditure. Under Section 179, equipment purchases, up to the amount approved for a given year, can be expensed (deducted from taxable income) if installed by December 31st. Non-Tax leases qualify for this deduction in their year of inception. Any excess above the expensed amount can be depreciated depending on the equipment type. Not all states follow federal law. Contact your tax advisor for further detail or visit www.irs.gov for specific detail.

Tax/True Lease Benefits

If a lease is a Tax Lease/True Lease, the lessor retains ownership and you, as the lessee, may be allowed to claim the entire amount of the monthly investment as a tax deduction. Many rental contracts qualify as a true lease including a 10% Option and a Fair Market Value Lease.

Example Calculation: Assume that you have a Tax/True Lease with a $1,000 monthly payment, the below tax savings that may be available:

To take advantage of the incentives and the substantial tax savings, your business equipment must be put in use by year-end. Please contact your tax advisor to learn about the specific impact to your business.

Interested in learning more? We’ll provide you with a free consultation and extend finance solutions so you can acquire the business equipment you need.  Contact us today!

Fed Beige Book Says Economy Improved in 10 Districts

Jan. 13 (Bloomberg) -- The U.S. economy improved in 10 of the Federal Reserve’s 12 districts last month, marking a broadening of the recovery, the central bank said today.

“While economic activity remains at a low level, conditions have improved modestly further,” the Fed said in its Beige Book business survey, published two weeks before the Federal Open Market Committee meets to set monetary policy. The Philadelphia and Richmond Fed districts were the exceptions, reporting “mixed conditions.”

The Beige Book offers anecdotal evidence that will help central bankers weigh developments in an economy where unemployment is projected to remain above 10 percent through the first half of the year. Policy makers, who next meet Jan. 26-27, last month repeated a pledge to keep borrowing costs “exceptionally low” for an “extended period.”

Most district banks reported that holiday-season consumer spending was “slightly greater” in 2009 than the year before, while remaining “far below” levels of 2007, according to the report, which reflects information collected through Jan. 4. Manufacturing improved or held steady in most districts, while the labor market and loan demand remained weak.

The Standard & Poor’s 500 Index extended gains after the report, rising 1 percent to 1,147.08 at 3:42 p.m. in New York. The yield on the 10-year Treasury note was up eight basis points to 3.79 percent.

‘Picking Up’

The report “suggests the economy is very gradually gaining steam,” said Zach Pandl, an economist at Nomura Securities International Inc. in New York. “The risks of a dip back into recession are declining.”

Chicago Fed President Charles Evans said separately today that economic “headwinds” such as tight bank credit will abate this year. Evans, in a speech in Coralville, Iowa, said the economy may expand 3 percent to 3.5 percent with inflation remaining stable as bank lending and consumer spending pick up.

“We are going to be waiting for the economy to improve in a strongly sustainable fashion and until that happens, then it is unlikely we would change policy,” Evans, who doesn’t vote on interest rates this year, told reporters after his speech. “Inflation currently is under-running my guideline for price stability so that also supports continued accommodation.”

Employers unexpectedly cut 85,000 jobs in December, the Labor Department reported on Jan. 8, and the jobless rate was unchanged at 10 percent, close to a 26-year high. Payrolls have declined by more than 7.2 million since the recession began in December 2007.

‘Out of Recession’

“Most people would agree we’re out of recession, but I just don’t think we’re going to see the unemployment rate coming down all that much very soon,” said Robert MacIntosh, chief economist at Eaton Vance Management in Boston.

Thomas Hoenig, president of the Fed Bank of Kansas City, said in an interview Jan. 11 that December’s job losses don’t change his outlook for a “modest” and “persistent” recovery.

Consumer confidence is increasing as companies slow the pace of job cuts and stocks rise. Retailers including TXJ Cos. and Sears Holdings Corp. reported improved sales over the holiday shopping season.

Sales climbed 14 percent in December at TJX Cos.’ stores open at least a year, beating the 5.9 percent average of analysts’ estimates compiled by Retail Metrics Inc. Sears posted a sales gain and issued a profit forecast that topped analysts’ projections.

‘Willing to Spend’

“Consumers were variously described as cautious, price sensitive, and focused on necessities, but sometimes willing to spend on discretionary purchases,” the Beige Book said. Auto sales were “flat or up slightly for some dealers” since the last Beige Book was released on Dec. 2.

The labor market “remained soft” in most districts, keeping wage and price pressures “subdued” in all but the Boston and Minneapolis districts. Hiring of temporary workers rose in New York, Cleveland, Chicago, and Dallas.

Peoria, Illinois-based Caterpillar Inc., the world’s largest maker of bulldozers and excavators, aims to bring back some laid-off workers next year as sales improve, said Chief Executive Officer Jim Owens.

“We’ll gradually begin to call people back and to rebuild our overall sales and ability to ship product,” Owens, 63, said in a Dec. 11 interview. Caterpillar cut about 18,700 full-time jobs and about the same number of temporary workers since December 2008.

Largest Economy

The world’s largest economy grew at a 2.2 percent annual pace in the third quarter, the first expansion after four quarters of contraction.

Gross domestic product probably grew 5.4 percent in the fourth quarter, according to Macroeconomic Advisers LLC, a St. Louis-based consulting firm founded by former Fed governor Laurence Meyer.

Home sales “increased toward the end of 2009 in most Federal Reserve Districts,” except San Francisco, where “demand for housing has been steady,” the report said.

Sales of new and existing homes rose 43 percent through November from a recession low in January. An index of pending home sales, or signed purchase agreements that have not closed, fell 16 percent in November, the first decrease in 10 months.

Americans may have been waiting for a first-time buyer tax credit to be extended. President Barack Obama on Nov. 6 extended the $8,000 tax credit until April 30 from Nov. 30 and expanded it to include some current owners.

Borrowing Costs

The Fed’s program to buy $1.45 trillion of mortgage-backed securities and agency debt through March 31 is helping to push down borrowing costs for home buyers.

Commercial real estate “remained soft” in nearly all districts, the Fed said, with New York, Philadelphia, Kansas City, and San Francisco reporting “further weakening in demand.”

Loan demand “continued to decline or remained weak” in most districts, with a number reporting that “credit quality continued to deteriorate.”

Fed Chairman Ben S. Bernanke, in a Dec. 7 speech, cited tight credit among “formidable headwinds” likely to hinder growth. Total loans and leases by banks in the U.S. fell to $6.79 trillion in November from $7.23 trillion a year earlier, according to Fed data.

To contact the reporter on this story: Michael McKee in New York at mmckee@bloomberg.net

Last Updated: January 13, 2010 16:02 EST

Analysts: Tech Sector to Recover in 2010

Analysts: Tech Sector to Recover in 2010

 

(NEW YORK) — The tech downturn is over and a recovery is on the way after a "dismal" 2009, as companies resume spending on computers and software, according to a new analysis.

Forrester Research Inc. was set to report Tuesday that it expects global spending on technology products and services to grow 8.1 percent in 2010, to more than $1.6 trillion. U.S. spending is expected to rise 6.6 percent, to $568 billion. Get the latest tech news at Techland.com.

The projected increases follow sharp declines in 2009, when businesses and governments slashed their purchases of PCs, computer peripherals and communications equipment in response to the economic turmoil and credit crisis. Many large tech companies, such as Microsoft Corp., remained profitable and increased their stock prices in 2009, but often they relied on layoffs and other expense reductions to do it. See TIME's tech buyer's guide of 2009.

Even with the expected rebound, "the level of computer equipment purchases in 2010 will still be lower than in 2008 or even 2007," said Forrester analyst Andrew Bartels.

With the recession over, pent-up demand for new computers and updated software programs stands to benefit the companies that make them. The October launch of Microsoft's latest computer operating system, Windows 7, also gives companies a reason to start replacing PCs.

Still, Forrester cautioned that growth will start slowly and pick up later in the year.

The research firm also expects spending on communications equipment to pick up this year, partly because of demand in emerging markets that are building wireless and broadband networks. See 25 websites you can't live without.

Forrester is not alone in predicting a rebound for the year. Last fall Gartner Inc. forecast 3.3 percent growth in global technology spending. Another analyst firm, IDC, said in December that worldwide tech spending would grow 3.2 percent in 2010, returning the industry to 2008 levels of about $1.5 trillion.

More insight into the sector's recovery should come Wednesday, with the release of figures on PC sales in the fourth quarter, and on Thursday, when Intel Corp. reports earnings for the period.

FICO Reveals How Common Credit Mistakes Affect Scores

Tax Law Changes For 2009

By Vistage member Jeff Call, Managing Director of Personal Financial Services, Bennett Thrasher PC

The federal stimulus plan and other legislation has created significant tax law changes that offer tax-savings on both personal and business tax positions. Below are explanations of the changes and strategies you can employ to take advantage of the new laws and complement your overall financial plan.

Changes Affecting Businesses

The stimulus plan, also known as American Recovery and Reinvestment Act of 2009 (ARRA) includes incentives for businesses and will create tax savings and additional cash flow that can be used to spur economic growth.

Extended Bonus Depreciation and IRC Section 179 Expensing
ARRA extends the additional 50 percent first-year depreciation through 2009. The act also extends the temporary $8,000 increase in the first-year depreciation limit that applies to passenger automobiles that qualify for 50 percent bonus depreciation. In addition, ARRA also extends the 2008 limits relating to Section 179 expensing. For 2009, the maximum that a taxpayer can expense using Section 179 is $250,000 (this amount is reduced dollar for dollar for the cost of qualifying purchases in excess of $800,000). If you are considering significant fixed asset purchases in the near future, it may make sense to accelerate these to the 2009 tax year to take advantage of these deductions.

Net Operating Loss (NOL) Carrybacks
The act allows small businesses (less than $15 million in gross receipts) to elect to extend the general 2-year carryback rule for 2008 NOL's to 5 years. Tax rates are expected to increase after the tax cuts enacted during the Bush administration expire in 2010. For NOL's generated beginning in 2009, it may be more beneficial to elect to carry the losses forward to reduce taxable income that is likely to be taxed at higher rates.

Recently, Congress passed an amendment to the NOL provision and extended it to 2009 and to include all businesses, not just those with income under $15 million as was the law for 2008. A taxpayer may make the election for only one taxable year, and the amount of any NOL carried back to the 5th taxable year is limited to 50% of the taxpayer?s income from that year. Those that made the eligible small business election carryback for 5 years in 2008 are eligible to make the election again in 2009. Eligible small businesses are also not subject to the 5th year 50% income limitation mentioned above.

Consolidated Omnibus Budget Reconciliation Act Continuation Premium Subsidy (COBRA)
The law requires certain group health plans to allow terminated employees to continue to participate in the group plan for a specified period of time after separation from employment. ARRA provides that for a period up to nine months an assistance-eligible individual is treated as having paid any premium required for COBRA coverage if the individual has paid at least 35% of the premium. Thus, if the eligible person pays at least 35% of the premium, the group health plan must treat the individual as having paid the full required premium and the individual is entitled to a 65% subsidy on the premium. If, as an employer, you provide this subsidy, then you can claim a corresponding credit on your quarterly/annual employment tax return (Form 941).

Tax Planning Tips for Businesses
While 2009 tax returns are not due until April 15, 2010, the time to evaluate your 2009 tax situation is right now. Certain tax planning strategies can increase your cash flow, but you must take action prior to the end of the year.

Strategies for Businesses with Increased Profits in 2009
If you expect your 2009 tax bracket to be higher than last year, look for opportunities to accelerate deductions or defer income. Deferring income to a year with a lower tax rate will decrease the taxes on that income. Similarly, accelerating deductions into the year with a higher tax rate will increase the value of that deduction.

• Opportunities to Defer Income
• Delay collection of business debts, rents, and payment for services (if operating on the cash method of accounting)
• Defer year-end compensation/bonuses to right after year-end
• Defer sale of capital gain property or take installment payments rather than lump-sum payments
• Postpone retirement plan distributions that are not required

 

• Opportunities to Accelerate Deductions
• Make next year's charitable contributions before year-end
• Make deductible interest and property tax payments due in January prior to year-end
• Make Q4 state estimated tax payments prior to year-end (make sure that you will not be subject to the Alternative Minimum Tax for 2009)
• Accelerate alimony payments

You may not be able to control some of the items above, but it?s prudent to identify where you have some flexibility in the timing of these items.

Strategies for Businesses with Decreased Profits in 2009
If you expect the financial struggles of the past 15 months to put you in a lower tax bracket than previous years, you should look for opportunities to accelerate income and defer deductions. Hopefully 2010 will be a more prosperous year for your business and recognizing income during 2009 with the lower tax rate could provide significant savings. This timing strategy may not have a significant impact for your 2009 tax planning, but could have a major impact on your 2010 tax planning.

Take Advantage of Tax Cuts Before They Expire
Many of the tax cuts that were enacted during the Bush administration are set to expire at the end of 2010. As mentioned above, the billions of dollars spent on economic recovery efforts during 2009 will likely be paid for, in part, by tax increases on high net-worth individuals.

While no one knows for sure how tax rates will change, these are some changes that might take place:

• Top marginal tax rate may increase from 35 to 39.6 percent.
• 15 percent qualified dividend and long-term capital gain tax rates may increase to 20 percent.
• Healthcare bill may impose a surtax of 5.4 percent on singles with Adjusted Gross Income (AGI) over $500,000 and joint filers with AGI over $1 million.
• High-income taxpayers may lose up to 80 percent of their itemized deductions (charitable contributions, real estate taxes, state income taxes, and interest ) if their income is high enough.

Given these possible scenarios, revenue or income may be more valuable to you in 2010 than 2011. As you plan for the 2010 tax year, it?s important to keep these potential changes in mind.

With likely changes in law coming, proactive tax planning is more important than ever. We encourage you to be in touch with your tax adviser regarding your personal tax planning strategy to determine the tools and techniques that will place you in the best financial position.

Published by Vistage View, the online portal of how-to and actionable business advice available only to Vistage members http://www.vistage.com/economy. 

Happy ThanksGiving From All of Us

To all of you...

Audience Vs. Tribes...

Whether you are a manufacturer, vendor, reseller or an individual professional you have to consider your brand in the growing popularity of communities online or what "Marketing Guru" Seth Godin calls Tribes...

ABC's On Credit Rating

CREDIT CRITERIA

A+ Credit

• Perfect personal and business credit with many lines of credit
• No Bankruptcies
• Low revolving debt
• Few credit inquiries in last 12 months
• No evidence of suits, liens, collections, or judgments
• No foreclosures or repossessions
• Excellent score in credit desk
• No slow pay activity on personal or business credit
• Business should be established over 2 years with strong D&B Report
• Strong Full Financial Package may be requested for lowest rates
• True A+ credit can apply for lowest rates available

A Credit

• Excellent credit with many lines of credit
• No Bankruptcies
• Low revolving debt
• Few credit inquiries in last 12 months
• No evidence of suits, liens, collections, or judgments
• No foreclosures or repossessions
• Excellent score in credit desk
• No slow pay activity on personal or business credit
• Business should be established over 2 years with strong D&B Report
• True A credit may qualify for best "Application Only" rates available

B Credit

• Good overall credit with many lines of credit
• No Bankruptcies
• Lower revolving debt, under $25,000 and under 50% credit utilization
• Few credit inquiries in last 12 months
• Evidence of suits, liens, collections, or judgments that are satisfied or under $1,000 aggregate
• No foreclosures or repossessions
• Good score in credit desk
• No recent slow pay activity on personal or business credit
• New businesses and Business over 2 years old with good business credit

C Credit

• Bankruptcy on credit bureau or business over 7 years old
• Evidence of a few recent slow pays to creditors
• Open suits, liens or judgments (less than $1,000 aggregate)
• No foreclosures or repossessions
• Revolving debt considered high, or high utilization of available credit
• Explainable, high credit inquiries in last 12 months
• Credit bureau scoring not within credit desk standards
• These credits are considered on a case-by-case basis. Higher rates will apply. A Full Financial Package may be required.
• Unfortunately, we cannot lease to businesses under 2 years old with this credit criteria.

D Credit

• Bankruptcy less than 7 years old
• History of slow pay to creditors since bankruptcy
• History of suits, liens, judgments or collections
• Foreclosure or repossession
• High revolving debt on credit cards (without acceptable tax returns)
• High credit inquiries in last 12 months
• Unfortunately, we cannot lease to customers meeting this criteria

Section 179 and Bonus Depreciation Explained

Tax benefits that aided businesses in acquiring new equipment in 2008 were extended to 2009 when President Obama signed into law the American Recovery and Reinvestment Act (ARRA) on February 17th, 2009.

Under Internal Revenue Code Section 179, businesses are allowed to expense up to $250,000 on most equipment or software placed in service during the tax year 2009. Additionally, they are able to expense 50% of the remaining figure under the depreciation bonus provision.

According to the Monitor Daily (www.monitordaily.com), the Associated Equipment Distributors has sponsored a website that explains the provisions in more detail and provides a tax calculator (www.depreciationbonus.org) to illustrate examples of deductions.

The Monitor Daily, a leasing industry trade journal, reported that Section 179 led to increased sales among equipment manufacturers as customers reaped the benefits of this tax deduction.