New tax incentives businesses should know

By Pamela Berard
While much of the attention surrounding the recent passage of the “Tax Relief, Unemployment Insurance Reauthorization, And Job Creation Act Of 2010” has focused on individual gains such as the extension of unemployment benefits several incentives for both large and small businesses are included in the Act.
Tom Davis, executive director, Greater New Bedford Industrial Foundation, sent a memo to the 45 businesses in the New Bedford Business Park, informing them about 2011 federal tax incentives for business expenditures. Among the benefits he highlighted: 100 percent write-off (i.e., deduction as an expense from revenue) for new equipment purchases which are incurred and placed in service after Sept. 8, 2010, through Dec. 31, 2011, under Code Section 168k.
This tax break, known as bonus depreciation, allows profitable companies to write off large capital expenditures immediately rather than over time with a depreciation schedule offering a large tax shelter.
“They can write off 100 percent for any purchase in 2011 as an expense,” Davis said, noting that because the corporate federal tax rate is 35 percent, “that’s like the Feds paying for 35 percent of the cost of a piece of equipment.”
Normally companies would use a depreciation schedule and deduct over the life of the equipment, which could take years and amount to much smaller write-offs.
Additionally, some businesses can benefit from:
100 percent write-off in 2011 up to $500,000 under Code Section 179 as an expense against revenue for qualified small business capital expenditures;
20 percent tax credit for research and development expenditures incurred in CY 2010 and CY 2011 under Code Section 41h.
Companies may also get a break through the research and development tax credit, which had expired but was extended under the Act.
“That’s huge,” Davis said. “Because this is a tax credit as opposed to an expense against revenue.”
A company has to be profitable to benefit from the incentives. “If you’re operating at a loss, the tax credit doesn’t do you any good because you aren’t paying any taxes,” Davis said.
Davis said businesses should check with their controller or CPA firm to find out about exceptions and get full details of which expenditures will qualify and which will not. But he said some of the incentives can significantly lower the cost of purchasing equipment or expanding a facility this year.
Davis said he advocated for these benefits with the area’s Congressional delegation, and he hopes it can help companies thinking of expanding or adding a research and development division, to boost the local economy.
“Since January 2010, the city has added about 1,400 jobs,” he said. “So things are recovered, but not to pre-Recession levels.”
The New Bedford Business Park, however, has welcomed 11 new companies since the Recession started, and five others expanded, Davis said.
February 25, 2011 3:55 PM
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