The clock is ticking on two new tax breaks that are scheduled to expire at the end of this year that benefit businesses that purchase packaging machinery and other capital equipment.
The tax breaks were extended or enhanced as part of the American Taxpayer Relief Act of 2012 and went into effect on January 2. The revised tax laws allow companies that acquire new packaging equipment and other capital during 2013 the chance to substantially increase the value of their purchases.
With half the year now gone, there are only six months remaining to take advantage of these new tax breaks before they are scheduled to expire.
Expansion of the Equipment Purchase Deduction
The first tax break is a revision of Section 179 of the Internal Revenue Service’s tax code, which allows companies to deduct up to $500,000 on the cost of new and used equipment purchased during 2013. Previously, businesses could only take a maximum of deduction of $139,000. The temporary tax code revision is designed to encourage small and mid-sized companies to make capital investments in equipment, like packaging machinery.
There are limits on the benefit, however. For example, companies can’t use the full deduction to create a net loss. Also, the deduction is phased out dollar-for-dollar after qualified purchases reach $2 million during 2013. That means that if a business spends $2.5 million on qualified equipment purchases, the deduction is no longer available for this tax year.
Bonus Depreciation Deduction
The second tax break is an immediate 50% bonus depreciation on new equipment put into operation through the end of this year. Unlike the tax code revision, the bonus depreciation rules don’t cap the total investment so there is no phase-out of the deduction. This particularly benefits companies that make capital equipment expenditures over $2.5 million.
Both tax breaks can be applied. Generally, businesses take the Section 179 deduction first and then apply the bonus depreciation.
Time Is Running Out
With only six months left in 2013, businesses seeking to take advantage of these temporary tax breaks and haven’t yet made capital expenditures on packaging equipment or other similar purchases need to act relatively quickly before these benefits expire. For companies making investments in new equipment or considering expansion, these tax breaks will help pay for it by reducing the overall tax burden, subsequently improving cash flow.
It pays to take advantage of these tax breaks as early as possible. Businesses that do so can get some benefits with their estimated tax payments as they make their financial plans for the remainder of the year. If your company is considering buying new equipment, the benefits of these tax breaks provide an opportunity add value and receive an accelerated return on investment.
Bahrns offers a wide variety of packaging equipment, as well as other products to which these temporary tax breaks can be applied.