Sep 17, 2012

Capital Investment: Benefits Of 4Q Equipment Financing

During the economic challenges of the past few years, many U.S. food manufacturers held off investing in production equipment and other processing systems in an attempt to conserve cash.  But food manufacturing businesses considering a capital equipment investment may want to act now so they can take full advantage of long-standing capital equipment tax breaks set to expire on Dec. 31 and IRS equipment depreciation guidelines providing year-end benefits.

Here are specific cost-savings advantages food manufacturers considering equipment financing at the end of the year should take into account:

Expiring Tax Breaks

For a limited time, qualifying food-manufacturing businesses can write off 50 percent of the cost to acquire eligible equipment on 2012 tax returns. Since 2008 some level of accelerated depreciation — or bonus — has been available to equipment owners. These long-running tax breaks, however, will come to an end on December 31, 2012.

All capital equipment is depreciated in some way, whether you pay cash, borrow or lease equipment. How you make that depreciation benefit work for your business depends on the company’s current tax position.

If your business is a full taxpayer, using a loan or non-tax lease allows the business to claim depreciation, including any eligible bonus, directly. If this isn’t the case and your manufacturing business is an Alternative Minimum Taxpayer or has other limited-life tax credits, you may not be able to take full advantage of bonus depreciation directly. In this case, a tax lease may allow you to trade in the tax benefit for special lease pricing, resulting in an overall lower financing cost.

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