President Obama's idea on 100% full write off on capital equipment

IAMATT · Sep 8, 2010

Anyone else catch this? The idea is to allow 100% write off until the end of enxt year for capital quipment purchases. HAS NOT BEEN enacted yet! Hopefully it will we are looking at another $80K in purchases.

John Welden · Sep 8, 2010

IAMATT said:
Anyone else catch this? The idea is to allow 100% write off until the end of enxt year for capital quipment purchases. HAS NOT BEEN enacted yet! Hopefully it will we are looking at another $80K in purchases.

I'm sure the republicans will be against it.

Ries · Sep 8, 2010

Isnt this just upping the limit on the section 179 expense deduction?

I believe its still currently $250,000- I dont know for sure, as, although I have used the Section 179 expense, I have never come near to spending the maximum allowed in one year.

I suppose this might make a difference for a few very large companies- but very large companies are the ones that are sitting on over $1.5 TRILLION dollars in savings, in cash, right now, and thats only the "non-financial" companies, that doesnt mean banks or hedge funds or insurance companies.

So its not exactly like US companies dont have the money to invest in equipment- the really big ones have plenty of cash- but they are waiting for SALES to pick up before they spend money. Being able to expense it is great, sure, but only if you have profits that are taxed. The Section 179 expense exemption applies to lowering taxes on profits.
No profits, due to low sales, and its not very usable, or necessary.

The vast majority of jobs are generated by small businesses, and most small businesses dont spend more than a quarter million dollars per year (the current amount you can expense) on equipment.

So while for a few, really big dogs, this would mean a quicker deduction- (remember- you can expense all you want right now, you just have to spread the depreciation out over a few years) for most businesses, this is kinda moot.

If you have enough cash to spend more than a quarter million this year, congratulations, you are doing better than about 99% of us.

Joe788 · Sep 8, 2010

Ries said:
If you have enough cash to spend more than a quarter million this year, congratulations, you are doing better than about 99% of us.

The key is that you don't need to have all the cash, or spend all the cash, to get the deduction.

To keep the numbers super simple, let's just say you turn a year end profit of $250,000. Uncle Sam is going to take $87,500 of that. You end up with $162,500 and a sore rear end.

The alternative, is to buy a machine and use the deduction.

You buy a $250K machine on a 5 year lease, the payments are $5,000/month. You make 12 months worth of payments the first year, totaling $60,000. You pay NO federal income tax.

So now you've made $250,000, spent $60,000 in machine payments, and wrote off the entire purchase price of the machine. You've got $190,000 in your pocket, and a bitchin' new machine that's 1/5th of the way paid off.

Chris Foley · Sep 8, 2010

Joe788 said:
...You buy a $250K machine on a 5 year lease...QUOTE]

I don't understand how you can get away with leasing a piece of equipment which you claim to the IRS was purchased.
I would think if it's leased you can only deduct the actual lease payments, not the outright purchase price.

Guest · Sep 8, 2010

Liked Ries said this isn't going to have much of an effect. I believe you could not take a section 179 above your gross receipts or over $250,000. It is just something that sounds good to the uninformed. Raising the limits sin't going to do much of anything.

Joe788 · Sep 8, 2010

Chris Foley said:
Joe788 said:

...You buy a $250K machine on a 5 year lease...QUOTE]

I don't understand how you can get away with leasing a piece of equipment which you claim to the IRS was purchased.
I would think if it's leased you can only deduct the actual lease payments, not the outright purchase price.

Click to expand...

It essentially is a purchase. If you live in a county with property tax, you pay the property tax on it, etc. At the end of the 5 years, the machine is yours.

SeymourDumore · Sep 8, 2010

Chris Foley said:
Joe788 said:

...You buy a $250K machine on a 5 year lease...QUOTE]

I don't understand how you can get away with leasing a piece of equipment which you claim to the IRS was purchased.
I would think if it's leased you can only deduct the actual lease payments, not the outright purchase price.

Click to expand...

I think the lines between equipment leases and loans have blurred over the years.
I know Joe's figures to be correct as my accountant has been deducting more for depreciation in the first years than it was actually paid out, so I guess as far as the IRS is concerned, your 5 year lease term is a contract and is as good as a loan or an outright purchase.
The thing here is that after the first big humpin' deduction, you get to deduct none of it. Meaning that Uncle Sam will get his money, tough starting only a year later.
At the end of the day tough, this bill is no different than what was in place previously.
What I was curious about tough is that there might be a clause that the 100% deduction applies only to US made goods, at least that's what I saw popping up on one of the newscasts.

PaulT · Sep 8, 2010

Joe788 said:
You buy a $250K machine on a 5 year lease, the payments are $5,000/month. You make 12 months worth of payments the first year, totaling $60,000. You pay NO federal income tax.

In the "good old days" you could get away with that, but don't forget that now you have an "alternative mininum tax" which is based on your pre-deduction income, you can't get away paying zero tax anymore.

Paul T.
Power Technology

Tonytn36 · Sep 8, 2010

For those who say 'it ain't gonna help'......think about it a minute.

There is still LOTS & LOTS of equipment built right here in the good 'ol USA. (See Motion Guru, Mazak, thousands of other automation and integration companies, food processing equipment, ovens, washers, you name it....)
This is about getting our economy back on it's feet......

When the equipment is bought, with an incentive such as mentioned and which as noted, is a larger help for big companies with deep pockets and lots of cash sitting around (that's not currently in the economic stream) than smaller companies, the multiplier begins.

Someone has to make that equipment. Someone has to make all the bits & pieces that goes into that equipment, right down to the nuts & bolts and balls in the bearings. Someone has to qualify it, package it, haul it to it's destination and someone has to install it and set it up for production.
Every step of the way, someone has work to do and there is money flowing. It's all about creating some demand, and I for one agree with the idea 100%. Lets get that trillions of dollars in cash sitting in a bank back into the stream and create some work for folks.

There are *lots* of companies out there whose capital budgets were in the multi-millions every year who are now holding onto that cash and buying only what is absolutely and minimally required who would do otherwise if there was an incentive such as this.

The tax revenue generated by all of the multiplier effect will more than offset any lost by the incentive. Our economy relies on money rolling over and in circulation. It doesn't help us one bit if it's sitting in "cash reserves" on a corporate ledger.

SeymourDumore · Sep 8, 2010

Tony

It isn't the question whether it will help or not, the question is how is it different than what was in place before.
Prior to Bush, you could deduct up-to a certain precentage in the first year ( I think it was 25%), then the rest over 3,5 or 7 years.
Bush modified it so the first year you can deduct up-to 250K, the rest over the remainder of the qualifyiong purchase ( 3,5 or 7 years)
In either case, you were able to deduct 100% of the purchase, just spread over multiple years.
This one allows 100% in the first year, but then none later on ( obviously)

Unless I'm mistaking......

toolmaker96 · Sep 8, 2010

It ain't gonna help.

1. You have to be making money to need a write off.
2. You don't buy machines for the write off. You buy them because you have the work to justify them.

Tonytn36 · Sep 8, 2010

It would help......

$250k doesn't buy you much in the way of manufacturing equipment. Sure, it's a lot for a 3 or 5 man job shop, but that's a drop in the bucket for a larger manufacturer.
We've got the work and need the equipment, but getting the capital released is difficult. If this incentive was in place, I'm quite sure the purse strings would ease up because there would be no long-term commitment for depreciation. IMHO, this is akin to being able to just expense what is normally a capital item, which has some advantages in a larger corporation, especially for your costing.

jdj · Sep 8, 2010

Thank you Tonytn36.

To all the nay-sayers...You know you would be ALL in favor of it (and say it WOULD help) if it was someone else's idea. Namely, the "other side of the isle's" idea.

Jeff

Gary E · Sep 8, 2010

Not knowing much about the accounting part of it, but there's no need for a writeoff untill you have a demand for STUFF from your customers... and how does that happen?... THEY have to have a demand from THEIR customers... how's that happen?... THE PUBLIC has to WANT STUFF.... why would they want anything?... they have no job, and even if they have a job, they dont know how long that job will last... Soooooooooo

Eliminate ALL SS contributions from the employers... that's 7.65% saving for the employers.

Eliminate ALL Fed Income Tax deductions from the employee..

What will that do?.... Their PAY CHECK GOES UP UP UP and THAT will open the FLOOD GATES on Consumer spending... and the demand for STUFF will drive the factories to 3 shifts making STUFF...

You say the Govment needs money to run on?... BS.. they have been running a huge deficit for YEARS... they have the PRINTING PRESS Souped up, fuel injected and supercharged and running on OverDRIVE...
Let this economy get jump started and then Sloooowly bring back resonable taxes....

Ohh... and maybe the bank will again start paying interest on all the cash they are sitting on.... maybe the Fed will start paying a decent interest rate on the T Bill and Bonds... Todays auction atracted 3.21 for every one dollar of bills and bonds...and at a el cheapo intrest rate... Raise rates to say 6% and even I will buy a few...

Version B
Give EVERYONE working now who is 55 yrs old or over... $1,000,000 ... there's conditions...
1... You MUST QUIT your job.... That will make room for the younger ones to take your job and the even younger ones to take their place in the workforce. EMPLOYMENT FIXED
2... You MUST buy a House... yeah even if you already own one,,,BUY ANOTHER ONE...a vacation cabin, a house at the ocean... whatever, whereever....HOUSING INDUSTRY FIXED
3... You MUST buy a new Car... MUST BE AT LEAST ASSEMBLED HERE IN THE USA...
AUTO INDUSTRY FIXED

Will they do any of this?...
I'm not holding my breath... Washington DC does not know how to STOP SPENDING.....

Joe788 · Sep 8, 2010

I'd be much more thrilled with a program that mirrors the handouts given to farmers. Sure, it wouldn't help the economy, or the American public, but it would benefit shop owners! I was at a buddy's shop last week, and he was showing me all of the new tractors he's getting handed to him.

They'd only received the first 4 so far, but they've got 14 more just like it on the way.

All they had to do, is destroy one working tractor for every new tractor. When the new tractor is delivered, they come out and verify that the old tractor still functions. Then you smash a hole in the block, and bust off the bellhousing of the old tractor, and they come out to verify it again. At that point you take it to the scrap yard.

Just imagine if you could trade a punch tape lathe from the 1970's, for a brand new Mazak Integrex, and all you had to do is vandalize the old machine and throw it in the garbage?

Your tax dollars at work! :nutter:

SeymourDumore · Sep 8, 2010

jdj said:
Thank you Tonytn36.

To all the nay-sayers...You know you would be ALL in favor of it (and say it WOULD help) if it was someone else's idea. Namely, the "other side of the isle's" idea.

Jeff

Jeff

I'm not a naysayer, and this bill is actually pretty darn innocent.
You may take advantage of the whole 100% up front, or do whatever works best for your situation. That's why I've said that at the end of the day ( 3,5 or 7 years ) you are exactly in the same place either way, so is the government. I highly doubt that this particular policy would get any criticism from either side of the isle.

paul39 · Sep 8, 2010

Joe788 said:
I'd be much more thrilled with a program that mirrors the handouts given to farmers. Sure, it wouldn't help the economy, or the American public, but it would benefit shop owners! I was at a buddy's shop last week, and he was showing me all of the new tractors he's getting handed to him.

They'd only received the first 4 so far, but they've got 14 more just like it on the way.

All they had to do, is destroy one working tractor for every new tractor. When the new tractor is delivered, they come out and verify that the old tractor still functions. Then you smash a hole in the block, and bust off the bellhousing of the old tractor, and they come out to verify it again. At that point you take it to the scrap yard.

Your tax dollars at work!

Joe788,

If I have a working tractor and go to the John Deere store and pick out a $250,000 tractor, the gummint pays for the tractor, they deliver it and smash my tractor?

I can't find any info on the program, could you provide some?

Paul

Davis In SC · Sep 8, 2010

I think that a big Sect. 179 deduction actually nets the Govt more tax dollars, it just takes a few years..
Prime example was when we started out shop. We had bought 3 new machines (5 year financing), so the first year or so, money was tight. So to conserve cash, we took the max 179 deduction, which meant we owed almost no tax.. Then in a few years, when the money was coming in (Higher tax bracket), we had already used up all of our deductions on the machines, but still were making payments.
Over the first 7 or so years, we could have saved quite a bit of tax, had we used a conventional depreciation schedule..

SeymourDumore · Sep 8, 2010

Davis In SC said:
I think that a big Sect. 179 deduction actually nets the Govt more tax dollars, it just takes a few years..
Prime example was when we started out shop. We had bought 3 new machines (5 year financing), so the first year or so, money was tight. So to conserve cash, we took the max 179 deduction, which meant we owed almost no tax.. Then in a few years, when the money was coming in (Higher tax bracket), we had already used up all of our deductions on the machines, but still were making payments.
Over the first 7 or so years, we could have saved quite a bit of tax, had we used a conventional depreciation schedule..

That's exactly the reason most businesses won't see a big advantage with this, just as they did not see it with Bush's 250K cap. You gotta figure that in order to come out ahead, you'd have to have your net income well above the 250K so you're still in the higher tax bracket after the deduction.
And again, this isn't to say that it is a bad policy, just that it will have limited audience, certainly not the average smaller business.
With that said tough, you gotta live the way it is being spun.

With the new bill You can deduct 100% of your capital expenses!

Uhmmm.... you could do that today, and yesterday and before that too. It's just you can do it in the first year. That's all.

But I digress....

President Obama's idea on 100% full write off on capital equipment

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