Recent tax legislation has given manufacturers a VERY BIG incentive to purchase and install new equipment in 2011:
Any and all new equipment purchased and installed before December 31, 2011 can be deducted for income tax purposes in full in 2011: (100% BONUS DEPRECIATION THROUGH 2011)
Here’s how this new tax provision works for a typical manufacturer or fabricating contractor:
Let’s assume that ABC Custom Metal Fabricators, Inc. retools their facility in 2011 with NEW equipment totaling $800,000. Under the new law, ABC can write off 100% -- all of the $800,000 -- of the value of the asset in the first year, saving over $280,000 in federal and state corporate income taxes, or possibly more for subchapter S corporations depending upon the federal personal tax brackets and state personal income tax rates applicable to the S corporation shareholder/owners. Consult your tax adviser for specifics. In addition, there are new rules applicable to the purchase of used equipment – please consult your tax advisor to see if these benefits may apply to your situation or your project.
Note: The new equipment must be installed prior to December 31, 2011 to qualify for the 100% Bonus Depreciation. Bonus Depreciation on new equipment purchases drops to 50% for 2012.
PS: If the 100% Bonus Depreciation on new equipment in 2011 causes a Net Operating Loss for your corporation in 2011 this loss can be carried back two years ( and forward if necessary 20 years ) to recoup income taxes paid in prior years. Again, consult with your tax adviser for specifics.