The following is an article that I wrote for the PBA newsletter. I thought you might find this interesting.
Larry Kopsa CPA
PBA Tax Update - April 2008
April/2008
LATEST NEWS - Special Edition
Big Tax Write-offs for Businesses in the Economic Stimulus Act - But You Must Act Quickly
There is more to the Economic Stimulus Act than the rebates that most of us will be receiving this summer. Included in the Economic Stimulus Act are two provisions to help small businesses. These opportunities are only available in 2008, so if you want to take advantage you must act quickly.
These provisions have not received as much press as the rebates have. But, overlooking these provisions could be a costly mistake. Here is what you need to know to take advantage of the new law.
Leasehold Improvements
If, in the future, you are planning any leasehold improvements for your salon/spa or OTC, consider accelerating the project into 2008.
Before the Stimulus Act, leasehold improvements were depreciated and deducted over 39 years regardless of the term of the lease. Here is the new law. For 2008, and 2008 only, the taxpayer can deduct 50% of the cost in 2008.
A couple of examples will show how important this can be for your business.
Example 1: Normal Law
Hairball Beauty is planning to spend $78,000 for a major remodel (not including fixtures and equipment). Under the normal laws, Hairball Beauty will be able to deduct $2,000/year ($78,000 ÷ 39 years). Assuming a 33% tax bracket, Hairball Beauty will save a measly $660 per year for 39 years.
Example 2: Stimulus Act
Same facts as Example 1, except that Hairball Beauty does the remodel in 2008. Because of the Economic Stimulus Act, Hairball Beauty can deduct 50% in 2008, plus normal depreciation on the remaining 50%. So in 2008, Hairball Beauty has a write-off of $39,000 (78,000 x .50) + $1,000 (39,000 ÷ 39 years). This causes a tax savings of $13,200, plus $330 for the next 38 years.
So, if you are planning to remodel in the near future, consider accelerating the remodel into 2008 to get a huge tax write off and, at the same time, help stimulate the economy.
There are some specific rules that must be followed, so make sure you check with your tax advisor if you are considering any major purchases.
Fast Write-off of Equipment
Another Stimulus Act enhancement enacted by Congress is a higher deduction if you purchased equipment. This is commonly referred to as a "Section 179 Deduction." The deduction allowed in the pre-stimulus law was quite generous, so this may or may not impact your business.
Under the pre-stimulus law, if you purchased equipment you could elect to write off up to $128,000 of business equipment in the year that you placed the equipment in service, versus depreciating the equipment over 5 to 7 years. The Stimulus Act increases this amount to $250,000 for 2008.
If you are making major equipment purchases, this could provide you with a large tax write-off.
Once again, there are some detailed rules that you must focus on, so contact your tax advisor to see how this fits your fact pattern.
---
Larry Kopsa CPA is a partner in Kopsa Otte CPAs. Larry is a frequent speaker at beauty industry programs, including the PBA Symposium. He will be a presenter at PBA's upcoming Learning Lounge in Las Vegas this July.
Disclaimer: The information provided does not constitute legal, tax, accounting, or financial advice and is offered as an information service only. Those seeking specific advice should contact a professional advisor. No liability whatsoever is assumed in connection with the use of this information.
PBA SMART STAT
Voice of the Beauty Industry
"Representation on Capitol Hill/Government Affairs" was identified as the most valuable member benefit by PBA survey respondents.
91% of total respondents said Government Affairs was "valuable", while 66% of those said Government Affairs was not only valuable...but "extremely valuable".
Source: PBA 10th Anniversary Survey Report
The Washington Update is a publication of PBA's Government Affairs Committee.
Frank Zona Zona Salons, Committee Chair
Serena Chreky Andre Chreky, the salon spa
Eric Schwartz OPI
Max Wexler Beauty Craft Supply
