by: Stephan King

Congress recently passed significant tax legislation dubbed the “Economic Stimulus Act” of 2008. Most media reports focused on a tax rebate for individuals, but there are two incentives designed to jump start the economy aimed at the business community. How could they influence RV dealers?

Expanded Expense Election
The act allows small businesses to write off up to $250,000 of qualifying business machinery and equipment expenses in 2008. Prior to the change, the amount for 2008 was limited to $128,000. This is an increase of $122,000. You can only write off the $250,000 if the total investment during the year does not exceed $800,000. As a result of this

incentive, most small businesses including your dealership, and even some moderate-sized businesses with moderate capital equipment needs, will be able to obtain a full deduction for the cost of business machinery and equipment purchased in 2008, thereby reducing their effective cost for those assets.

However, the deduction is only allowed if your business has taxable income to the extent of the expense election. Therefore, if you don’t make money in 2008 you will not be able take advantage of the new rule.

Bonus Depreciation
The bonus is back. The government first allowed the bonus depreciation following the terrorist attacks in 2001, when the economy had come to a virtual stand still. The special depreciation boosted the economy. Unlike the expense election, bonus depreciation is available to any size

business.

Bonus depreciation allows businesses to deduct an additional 50 percent of the cost of certain investments in 2008. The remaining 50 percent is available for normal depreciation.With the bonus, you can write off 60 percent of the purchase price in the first year for qualifying property. Paired with the expanded expense election, first year write offs will be significant for almost every taxpayer. Beware; the real advantage here is if you have taxable income. If you have no income currently, these two provisions may offer a deferred tax benefit into the future.

Proceed with Caution
The act assumes you will run out and purchase new equipment, machinery, or fixtures for your business. If you do, you will get a nice deduction.

However, don’t run out and make that purchase unless your business

model can support the overlay. If you are a fence sitter, maybe now is the time to make that purchase? The big deductions sure help!

Stephan King is a certified public accountant and partner of Moss

Adams LLP. Moss Adams serves over 500 dealerships nationwide, ranging in

size from single-point stores to large mega dealerships and publicly held groups providing creative solutions to clients complex problems. For more information, please contact Steve.