There’s good news for US label converters. Congress recently passed a Bill to extend Section 179 and the Depreciation Bonus retroactive as of January 1, 2012, through the end of 2013.
What is Section 179?
Section 179 is a tax deduction that would allow label companies to deduct the purchase price of new or used equipment and software in the year it was purchased and installed as opposed to depreciating the equipment over the life of the asset. On January 1, 2011, Section 179 allowed the first $500,000 of equipment installed to be deducted. On January 1, 2012, this incentive was reduced to $139,000, and on January 1, 2013, was to be further reduced to $25,000.
The bill passed by Congress has increased Section 179 back to $500,000 and made it retroactive as of January 1, 2012, and through December 31, 2013. There are certain limitations that apply, including a $2,000,000 cap on total equipment purchased. Additionally, Section 179 may not exceed the taxable income for the year in which it is taken and is for equipment installed by December 31, 2012.
The first year depreciation bonus (aka “Depreciation Bonus”) is for new equipment only which was installed by December 31. After deducting Section 179 for new equipment purchased, the customer would then be able to deduct an additional 50% of the remaining balance for new equipment purchased and installed in 2012. This benefit was to expire on January 1, 2013, however Congress has elected to extend the 50% Depreciation Bonus through 2013.
This is important news for companies that are currently working on their 2012 year-end financials as they might be able to take advantage of the much larger tax incentives available to them. It’s also encouraging news for those who were unable to install their new equipment before December 31, 2012.
Many label companies are looking to increase their plant’s efficiencies this year with new equipment and looking to take advantage of the low financing rates available to them. This year’s generous incentives will enable these companies to write off most – if not all – of the equipment cost this year, but they will also realize a faster return-on-investment while increasing production and profits.
Below are a two examples illustrating how a converter can benefit:
New Production Equipment – $425,000.00
Tax Deductions for 2013: Providing the new equipment is installed by 12/31/13 and the client has not purchased over $2,000,000 in equipment in 2012 or 2013 and has this much in Pre-Tax profits, Section 179 allows the first $500,000 to be deducted: $425,000 = 100% of the equipment cost!
If the company’s before tax profit is taxed at 39%, that could be a tax savings of $165,750.00!
New Equipment Production Line – $1,000,000
Tax Deductions for 2013: Providing the line is installed by 12/31/13 and the client has this much in Pre-Tax profits, Section 179 allows the first $500,000 to be deducted, and with a Depreciation Bonus of $250,000, the total amount that can be depreciation is $750,000.
If the company’s before tax profit is taxed at 39%, that could be a tax savings of $292,500!
Please check with your CPA to see how these tax incentives can be of help to you.