Mainebiz

W W W. M A I N E B I Z . B I Z 33 N OV E M B E R 2 8 , 2 0 1 6 F O C U S H OW TO B Y S T E P H E N K R O L I K O W S K I F orward-thinking business leaders should consider acquiring new or updated equipment before the end of 2016 to take advantage of legisla- tion that both expands deductions and extends depreciation benefi ts for qualifying equipment purchases. Tax benefi ts and favorable pricing make the fourth quarter of the year a partic- ularly lucrative time for businesses to fi nance new or upgraded equipment. Financing capital equipment enables businesses to conserve cash and lines of credit while providing maximum fl exibility. Entering into a fi nance agreement at the end of the year is also a smart way for companies to use any remaining capital budget while preparing for the year to come. Consider these factors when deter- mining whether investing in capital equipment during the fourth quarter of the year aligns with your company's strategic goals: Incentives for small businesses Internal Revenue Service Code Section 179 is an incentive created to encourage businesses to invest in capi- tal equipment. It covers accelerated write-off s for capital purchases and is particularly benefi cial to smaller busi- nesses with limited budgets. Eff ective Jan. 1, 2016, businesses that purchase $2 million or less in capital equipment can deduct up to $500,000 of that expense immediately on their 2016 tax return. Financing can further enhance the bottom line by eliminating the upfront cash outlay typical of an equipment purchase while still preserving the Section 179 deduction. However, equipment must be fi nanced and in place by midnight Dec. 31, 2016, in order to qualify for the 2016 tax year. Companies requiring more than $2 million in capital equipment invest- ment in 2016 will need to manage the tax ownership of those additional assets in order to maintain a Section 179 write-off (there is a dollar-for-dol- lar phase-out of the deduction for pur- chases exceeding the $2 million thresh- old). By using a tax lease for assets exceeding the $2 million threshold, the leasing company becomes the tax owner of the equipment, which allows businesses to maintain the maximum Section 179 deduction. Extended Bonus Depreciation Under the same tax legislation, busi- nesses of all sizes can depreciate 50% of the cost to acquire eligible equip- ment on their 2016 tax returns. is tax break has been extended through 2019, although it will phase down to 40% in 2018 and 30% in 2019. For many businesses, asset depreci- ation plays an important role in fi scal management. Most equipment acqui- sitions off er depreciation benefi ts, but determining whether a company can eff ectively use all of that depreciation requires some consideration. is is especially true for equip- ment-intensive businesses. Full tax- payers in need of the sheltering eff ect of equipment depreciation will typi- cally benefi t from tax ownership of equipment. is can be accomplished with a loan, installment payment agreement and some leases. All of these options allow the user to deduct depreciation and interest charges from taxable income. Companies with a more complex tax situation may want to consider a tax lease. Tax leases eff ectively trade tax depreciation for lower payments. Plus, tax leases allow the entire lease payment to be deducted as an operat- ing expense. Leasing allows a company the free- dom to obtain the equipment it needs, when it is needed. With tax leases, companies avoid the fourth-quarter asset acquisition restrictions, yet still receive the tax advantage in the form of lower payments — because the lessor records the ownership of the asset(s) and resulting depreciation. Leasing can be a helpful option when project delays or unexpected equipment replacement needs arise in the fourth quarter. ere are many reasons to fi nance equipment at any time of the year, but companies interested in taking advantage of expanded tax benefi ts for 2016 and getting a head start on next year should consider fi nancing new or updated equipment before Dec. 31. It may be the best decision you make all year. S K i s senior vice president and business banking team leader for KeyBank's Maine market. He can be reached by phone at -- or email at _ @ . Take advantage of new tax incentives for year-end equipment financing A Division of Bangor Savings Bank WE STARTED FREE ATMs * FOR MAINERS. WE'RE NOT ABOUT TO STOP. Open an account today at your nearest branch at your nearest branch or online at bangor.com *For certain international ATM withdrawals, due to technical limitations, we will automatically reimburse $3.00 of an ATM fee charged. In those instances where the fee exceeds $3.00, please bring your ATM transaction receipt to any Bangor Savings Bank branch for the remaining reimbursement. Please ask for further details before traveling abroad. Member FDIC A Division of Bangor Savings Bank

• Cover