Don't Mess With Taxes

The eyes of not just Texas, but all of the United States, lately have been on domestic auto manufacturers. Will the Big Three American car companies get a bailout? How much? Will their executives really take a pay cut? What about union-negotiated employee contracts? If a bailout happens, when will that be?

Those questions might be answered in the next week or so, or any resolution might have to wait until next year. President-elect Barack Obama today reiterated his support for auto industry assistance, within limits. "I think Congress is doing exactly the right thing by asking for a conditions-based assistance package that holds the auto industry's feet to the fire," Obama said during a news conference this afternoon in Chicago.

Meanwhile, life goes on for dealers who sell GM, Ford and Chrysler vehicles. And some of them are trying to attract reticent buyers by touting the tax advantages a new auto might provide. Below is the front of a brochure that showed up in our mailbox last week.

The big tax break that my local Dodge dealers want me and as many other folks as possible to claim is part of the Section 179 deduction.

Under this Internal Revenue Code provision, a business can deduct a sizable chunk of company-related costs in one tax year rather than depreciating them over several years.

Better 179 write-offs: First, let's look at Section 179 in general. For the 2008 tax year, the amount that can be expensed under this part of the tax code was increased substantially to entice spending by businesses to help jump start the economy.

Under the Economic Stimulus Act -- you remember that bill; it was passed back in February and also created the rebate checks for individuals -- the deductible Section 179 costs were almost doubled.

Before the new law, a business could expense up to $128,000 of the cost of qualifying property in 2008. There also was a ceiling of $510,000 on such business property; if your company purchases exceeded that amount, the allowable Section 179 deduction began to phase out.

Now, thanks to the stimulus bill change, business can expense up to $250,000 of qualifying property and the old $510,000 ceiling is now $800,000.

The existing property eligibility rules remain the same. Generally, the property must be tangible personal property that is actively used in the taxpayer's business and for which a depreciation deduction would be allowed. The property must be used more than 50 percent for business and must be newly purchased property.

A bonus from bonus depreciation: In addition to upping the expensing amounts and limits, another new incentive for businesses to buy is a bonus depreciation provision.

The stimulus law change now provides a 50 percent first-year bonus depreciation of the adjusted basis of qualifying property.

Tax numbers crunchers say this provision should provide businesses with an estimated $44 billion in additional deductions in 2008. 

SmBiz.com has details, along with examples, on the benefits of bonus depreciation.

Driving away in a tax break: As for Austin-area (and elsewhere) Dodge dealers, the temporary 50 percent bonus provision offers a business owner an added incentive to buy a new company car.

As long as the new vehicle -- car, van or, the choice here in Texas, light truck -- is placed in service before Jan. 1, 2009, it qualifies for the bonus write-off. That means you can claim a substantial deduction, as noted in the table below.

Again, for more details and examples on bonus depreciation and business auto purchases, check out this SmBiz.com page.

If you find these new expensing and depreciation provisions apply to your business, the country's car makers and I wish you happy and tax-saving motoring!