On My Mind: Time to Buy

Article From: Products Finishing, , from Gardner Business Media

Posted on: 5/1/2002

While last year was one of the worst anyone can remember, we are starting to see signs of a recovery in economic indicators, and we are beginning to hear positive statements from manufacturers, finishers and equipment suppliers. (Have I said this before?) Finishers must be prepared to take advantage of this economic recovery.

While last year was one of the worst anyone can remember, we are starting to see signs of a recovery in economic indicators, and we are beginning to hear positive statements from manufacturers, finishers and equipment suppliers. (Have I said this before?)

Finishers must be prepared to take advantage of this economic recovery. In some cases that means having a sound strategic plan. It may mean getting the word out that your company still has all the capabilities necessary to serve its customers. In others, it may mean purchasing that piece of equipment you've been holding off from buying.

For those of you that need new equipment, the government has passed a new tax law that will make that purchase less of a financial burden on your company. Before we even talk about what these changes are, it is important to note that Congress amended the tax law for 2001. This means that your company could financially benefit from the changes in the next couple of months.

So what are the changes to the tax law? There are two significant changes: a special 30% first-year depreciation bonus for business assets; and net operating losses can now be carried back five years.

The 30% first-year depreciation is in addition to normal depreciation schedules. This means many shops will be able to write off 40% of equipment purchases in the first year and a total of 57% in the first two years. For a $100,000 piece of equipment in the seven-year asset class, the result is a $9,100 one-year tax savings. If you're buying a new multi-million dollar finishing system, the new law could save your company large amounts of money.

Also, shops could have more money in their pockets to buy new equipment this year with the allowance to carry back net operating losses five years instead of two years. Some companies may have had a loss in each of the last two years. Therefore, there may not have been any gains to offset. However, since many companies made a profit three, four or five years ago, some shops could file an amended return, apply the losses to one or all of the years where a profit was made, and receive a refund check, which could be used to help purchase new equipment.

The point is that the government is trying to make it worthwhile for shops to buy equipment. When you factor in the importance of staying or getting ahead of your competition when coming out of a recession, now is the time to buy.



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