As the pitchman on the Home Shopping Network often declares in a frenzied plea — "Time is running out, and we'll never be able to offer this fabulous item at this incredible price … so buy now!"
No, HSN is not selling pavers, rollers and other asphalt equipment, but the immediacy of the sales pitch is relevant to equipment acquisitions you may want to consider by the end of the year.
Hopefully, 2004 is shaping up as a good fiscal year for your company. Reauthorization of the federal highway and transportation bill would have made it a better year, and certainly helped state agencies move forward with projects that were either delayed or eliminated because of the uncertainty of funding levels once the bill is finally passed.
But for the sake of this discussion, let's just say your business is up this year and you're probably looking at higher income taxes and higher estimated taxes for 2005. If you want to defer that tax hit, you may want to consider buying a piece of new equipment now in order to take advantage of the depreciation bonus, which will expire on December 31.
Congress created the bonus depreciation law in 2002 during the economic downturn as a way to encourage business owners to invest in new capital equipment, which in turn would stimulate manufacturing activity, increase jobs and enhance productivity. The depreciation bonus law allows new equipment purchasers to write off an additional 50 percent of the purchase price in the year the equipment is put into service. That bonus depreciation can offer a substantial tax savings for contractors who face a larger tax bill this year and a larger estimated tax payment schedule in 2005.
The bonus depreciation does not eliminate your tax liability, but rather defers it to a later date when your cash reserves are in better shape. That could be helpful for contractors emerging from an economic downturn and want to continue investing in future growth. And if you're seriously considering adding or replacing equipment, why not take advantage of the tax benefits available now.
Granted, new equipment inventories are low, used equipment values are holding firm (not much room to negotiate price, which is good if you are trying to sell a used piece of equipment), and interest rates will likely increase. But with the bonus depreciation law set to expire at the end of the year, it only makes sense to explore the advantages of buying that new piece of equipment now.
Talk to your accountant or tax advisor to see if this makes sense for your company. If it does, you need to act quickly on your decision.