- Created on Saturday, 03 May 2008 03:28
- Written by Mark E. Battersby
After the deadline for taxes has come and gone (at least for those who choose not to take the extension route), many within the commercial laundry industry are thinking about budgets for the bulk of 2008. Surprisingly, now might also be the best time to think about the tax deductions that will be taken - or ignored – on the 2008 tax returns.
During the tax year is a good time to think about the form in which your laundry’s activities are conducted. While the tax rules now permit many of us to choose to be treated as a corporation or a partnership right on the tax return, the decision is far more complex – and longer-lasting – than that. It might be a good time to discuss the operating form of the activity with a tax professional. In fact, it is always a good idea to run all tax-related strategies, deductions and transactions by the professionals your operation should be relying on.
Under our tax laws, a transaction generally must be completed prior to the end of the tax year. Fortunately, many small businesses can write-off the full cost of some assets in the year when purchased, rather than “capitalizing” them – deducting their cost over a number of years. The recently passed, Economic Stimulus Package of 2008, is a $168-billion economic “rescue” package that includes rebates for taxpayers and tax breaks for businesses such as laundries, breaks retroactive to the beginning of 2008 and, which expire after 2008.
The business portion of the economic stimulus package doubled the amount of equipment expenditures a laundry can expense or immediately write-off on their 2008 tax return from $125,000 to $250,000, with the investment limit increased from $400,000 to $800,000. Originally designed to encourage small businesses to acquire additional property and equipment, the Section 179 write-off has now been raised from the old $125,000 limit to $250,000. Also increased from $400,000 to $800,000 was the investment ceiling, above which the Section 179 write-off is reduced, dollar-by-dollar by the amount that total equipment or property acquisitions exceeding that ceiling. Thus, a laundry purchasing equipment in amounts greater than $800,000 for the year will hit the ceiling and find the Section 179 expensing election reduced accordingly.
The new law also allows a 50-percent bonus depreciation deduction for businesses buying major equipment. That’s right, bonus depreciation equal to 50-percent on new equipment is available, but only if the new property has a depreciable life of 20 years or less. The bonus depreciation applies to 2008 purchases only and does not apply to purchases for which the Section 179, expensing allowance is claimed.
While these new limits will expire after the 2008 tax year, other deductions, deductions that may have been overlooked on the 2007 tax returns, might prove beneficial for years to come – especially if thought about now. Consider those business expenses, for example. A commercial laundry - whether doing business as a corporation, an individual or as a partnership - is permitted to deduct (from gross income), all the ordinary and necessary expenses of carrying on that trade or business paid or incurred in the tax year. However, no tax deduction is permitted for any expenditure that is a capital expense. To deduct or to capitalize and depreciate, that is the question. Will the laundry operation have considerable taxable income that could be offset by an immediate deduction? Or, would capitalizing some expenditures to create depreciation deductions that would offset or reduce even more taxable income in later years be of more benefit?
A similar conundrum best resolved during the tax year involves the timing of those all-important tax deductions. As already mentioned, a large, immediate tax deduction might not be the proper strategy for your laundry business.
A laundry operation with little or no taxable income would obviously opt for smaller write-offs, saving the bulk of those deductions for later, hopefully more profitable years, when the deductions would be more valuable. After a banner year, on the other hand, making the most of all available tax deductions could put the laundry – or its owner/shareholders - in a lower tax bracket.
Fortunately, there are legitimate strategies that can be used now, during the course of the tax year to postpone deductions until later years. Remember, however, simply ignoring the tax deduction for depreciation does not work. That depreciation write-off might not be of much use on this year ’s tax return but it cannot be saved for the next year. The rules clearly say “allowed or allowable” whether computing the amount of gain or loss or the book value of an asset.
It should be obvious that the best time to begin thinking about the 2008 tax bill is now. Now is the only time when the routine transactions – and unique purchases – of your laundry business can be legitimately structured in such a way as to benefit the 2008 tax bill – and tax bills in later years.
Quick Rinse - News From Around The World
Advance Discount Registration Opens for IHMRS 2011
WHITE PLAINS, N.Y. — Advance registration is open for the 96th annual International Hotel, Motel + Restaurant Show® (IHMRS) being held November 12 – 15th at New York City’s Jacob K. Javits Convention Center. A discounted registration fee of $30 is available through October 7, 2011, with the rate increasing to $50 on October 8. The IHMRS present more than 700 hospitality industry suppliers and attract some 30,000 trade attendees The IHMRS website is located here.