You may have seen this news story I saw on September 20, 2010:
"The U.S. recession that began in December 2007 ended in June 2009, making the 18-month slump the longest since the Great Depression, according to the National Bureau of Economic Research."
After a millisecond of euphoria, I read the rest of the story. "The trough marks the end of the declining phase and the start of the rising phase of the business cycle...economic activity is typically below normal in the early stages of an expansion, and it sometimes remains so well into the expansion."
Umm, I think deciphered, this report meant: we see a change in our stats and things are going to get better, but we don't really have a clue when.
Another feel good headline and story appeared on my screen on September 27. This one said: "Benefits for Horse Industry In Small Business Stimulus Bill. The bill continues the bigger write-off for horses and other property purchased and placed in service by a horse business..."
That nanosecond of euphoria disappeared faster than Snickers bars on Halloween. This bill, mentioned in many horse related publications, is good for some but doesn't do much for most.
I spoke with Carol Gordon CPA, owner of Blue Ribbon Accounting about the benefits of the Small Business Stimulus Bill. In particular, I asked her about the "Section 179" expensing allowance for up to 500 thousand of cost for horses, farm equipment and other business property and bonus depreciation.
Carol said this is good news for horse businesses which are showing a large profit and can take advantage of the offset of big expense of capital investments and the resulting reduction in taxable income. But, Carol and I suspect that in this tax year there are very few horse businesses showing stampeding profits and huge potential tax liabilities. Carol's advice is to consult your tax preparer and talk about your specific situation for tax planning. Make that call BEFORE you make major capital purchase decisions driven by the the idea of saving taxes. You might be surprised with the answer.
Also included in the bill is a 50% first-year bonus depreciation. This may be a benefit to some in the racing business who pay big money for horses. As an extreme example, the yearling colt you buy for 1 mil for racing could have one half of the cost expensed in 2010 under section 179 and half of the remaining 500,000 cost (250,000) deducted in 2010 as bonus depreciation. The other 250,000 would be depreciated under normal schedules.
No question that's a huge bonus for those who need to shelter some big profits this year and I hope the six or seven people in this category take advantage of it.
My apologies to readers in countries other than the States, the above section is applicable to U.S. income taxation and I sincerely hope your nation's system for taxation isn't as complicated as the U.S.
All business owners should keep the following in mind.
1. It's October and if you're not up to date with your record keeping, get it done. You can't do any tax planning if you don't know what your tax burden will look like.
2. Talk with your tax preparer before you make major capital purchases based on your assumption you have a significant tax liability and you need a deduction.
3. If you don't have a good record keeping system: pencil based, one write, spread sheet or horse accounting software, get one in place.