Tax provision would help restaurants expand, remodel

A news release issued by the National Restaurant Association today detailed efforts by the Depreciation Fairness Coalition (led by the National Restaurant Association), to urge an extension by Congress of the 15-year depreciation schedule for restaurant improvements and new construction, leasehold improvements, and retail improvements that is set to expire at the end of 2009.

The Coalition says that a seamless extension is essential to provide businesses with the certainty they need to undertake capital expenditures, which are critical to fueling economic activity and creating jobs.

History the the 15-Year Depreciation…

A provision in the American Jobs Creation Act of 2004 shortened the depreciation period for qualified improvements to leasehold and restaurant property from 39 to 15 years. The provision applied to improvements that included new HVAC systems or refrigerators, and expired December 31, 2007; the EESA reinstated the allowance for the accelerated depreciation for leasehold and restaurant improvements retroactively from January 1, 2008 until December 31, 2009.

EESA also expanded the depreciation allowance to include improvements to retail buildings and new restaurants for 2009.

Other incentives – Section 179

Also this year, Congress increased the amount that small businesses can write off for capital expenditures to $250,000. Operators can take advantage of these incentives by purchasing new equipment during the 2009 calendar year. The law also maintains the bonus depreciation of 50% for qualifying assets. This bonus is in addition to regular first-year depreciation.

Sample Calculation:

Assume you finance $300,000 worth of business equipment, put it to use in 2009, and take advantage of Section 179. Your TAX SAVINGS could be significant.

1st Year Write Off:

 

  • Section 179 $250,000
    ($250,000 is the maximum write off in 2009)
  • 50% Bonus Depreciation $25,000
    (On remaining value: $300,000-$250,000=$50,000×50%=$25,000)
  • Normal 1st Year Depreciation $5,000
    (Depreciation calculated at 5 years=20%; $25,000×20%=$5,000)
  • Total 1st Year Deduction $280,000
    ($250,000+$25,000+$5,000=$280,000)
  • Tax Savings Assuming 35% Bracket $98,000
    ($280,000x.35=$98,000)

1st Year Net Cost After Tax Savings: $202,000

Qualifying Products:

Business owners who acquire equipment including machinery, computers, and other tangible goods, usually prefer a substantial deduction in a single tax year, rather than a little at a time over a number of years. This accelerated deduction is known by its section in the tax code: a Section 179 deduction. The 2009 law extends the amount of qualified property that a business can expense under Section 179 to $250,000.This incentive is for equipment placed in service by December 31, 2009 and is designed for small companies, so the deduction phases out when a business purchases more than $800,000 in one year. (Companies cannot write off more than their taxable income).

View qualifying products. (Please contact your tax advisor to confirm the specific product you are interested in qualifies under the Section 179 prior to purchase.)

3 thoughts on “Tax provision would help restaurants expand, remodel

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