Sunday, May 4, 2008

Saving Green while Staying Green

aka: understanding the US Economic Stimulus Act of 2008

[Keywords: saving money, dry ice blasting]

What would you do if you learned that going green in 2008 could save you a lot of money – both up front and over the long run?

If I told you that you could replace environmentally damaging or inefficient processes with an environmentally friendly process that would outperform anything you've seen before, have an impressive ROI, save you a lot of money, fit within your lean manufacturing initiatives and currently will cost you less than it ever has, or may ever in the future – would I have your interest?

Even if being green isn't important for your business yet, I'll bet putting a lot of money back into your cash flow is very important to you. Want to hear more?

Let's start with saving some big time bucks...

Every year around tax time, when I owned my own business, there was only one thing I looked forward to: being able to deduct the full cost of some of my capital expenses thanks to the IRS Section 179 deduction. Under the provisions of Sec 179, as a qualifying small business I could take the full cost of the equipment immediately, rather than taking it over a 5-7 year depreciation cycle.

While my purchases were always made because I thought they would either help me make more money or save money anyway - the Section 179 deduction always made me feel extra good. It's as though what I purchased was on sale - and a good one at that. For me it was like a 40% savings.

How so? Well, the Sec 179 deduction lets you deduct the full cost ($1 for $1) of the equipment from taxable income/revenue. So, a $10,000 purchase reduced my taxable income by $10,000 - and saved me about $4000 in taxes. That's more cash flow, in my pocket, immediately. It's one of the few places you can truly point to where the IRS puts its money where its mouth is and says "Invest in your business and we'll help it make sense for you."

2008 – a Year like no other

So this is great you say - and you already knew about Sec 179 deductions. So what's different now?

Well, as part of the US Economic Stimulus Act of 2008, the limit on Section 179 has been significantly increased from $128K of capital expenditures to $250K. That is huge! And the threshold for being able to take Sec 179 deductions has been raised from $510K of capital expenditures to $800K. That means many more companies can take advantage of these deductions, and at a higher level - to the tune of $122,000. That's not chicken feed (nothing personal against chicken feed of course).

If you are a business that spends $250K on capital expenditures, this provision alone could potentially add $48,000 to your cash flow for 2008.

What could you do with an additional $48,000 this year? My bet is quite a lot.

And a 50% Bonus for everyone!

But the IRS didn't stop with small businesses this year. They have also reinstated, for 2008, the 50% Bonus accelerated depreciation on ALL qualifying capital expenditures for businesses of any size. That means that even if you spend $1,000,000 on capital expenses 2008 will still be an especially good year for you.

The 50% Bonus depreciation is simple: you get to deduct 50% of the cost of the expense upfront, in 2008, in addition to taking its normal first year depreciation (on the remaining amount).

While not a full 100% like the Section 179 deduction this can still add up to quite a bit. And what's even better is that if you qualify you can take BOTH the Sec 179 deduction AND the 50% Bonus on your overall capital expenses.

One simple example

Okay, there's no such thing as a simple example – especially not when it's filled with lots of numbers and dollar signs. But let's give it a try anyway.

Let's say you spend $750,000 on capital expenses. And, just to make the math easy, let's also say that $750K has a 5 year depreciation schedule (which would be $150K per year).
  • In 2007, your allowable deduction for this expense would have been $150K.
  • In 2008, your allowable deduction for this expense could be $550K – or, $400K more.
At a 40% tax rate you'd be talking about $160,000 back in your pocket. I think that sounds like a tremendous deal – what about you?

Check the math

So, for those who want to see the nightmarish details (or are closet accountants), here's a look at how the math on this example plays out.

In 2007, you didn't qualify for a Sec 179 deduction because your overall expenses were in excess of the $510K threshold with a reduced (i.e. zero allowable) cap at $638K (you add the $510 threshold to the $128K deduction amount to get this number) - so all you could deduct was the standard 1st year of the 5 year depreciation for that $750K expense – which is $150K.

For 2008 however, you can deduct $250K under Sec 179 since your $750K in purchases was within the new $800K threshold. You can also deduct $250k (50% of the remaining $500K) thanks to the 50% Bonus depreciation AND you can deduct your normal first year deduction – which is $50K (20% of that remaining $250K). So your total 2008 deduction would be $550K.

Don't take my word for it... Really

So how does this apply to you and your business?

Well, you'll need to talk to your own accountant or tax professional to figure the real details out as they apply to you. I obviously can't offer tax or legal advice - and this blog isn't intended to serve that purpose.

But needless to say you SHOULD go talk to your tax professional now about this. To not take advantage of this would be, well, silly. And you wouldn't be in business, or reading this blog, if you were silly.

Where's the Green?

So I'm sure you're wondering by now: Where's the Green tie-in you promised (and I mean environmental, not cash!)?

That's simple actually. According to the US EPA, one of the most direct avenues towards environmental friendliness in business today is implementation of lean manufacturing process improvements.

In fact, the EPA believes in this so much that it devotes an entire section of its website, with a wealth of information, to lean manufacturing.

Lean manufacturing is all about eliminating waste. Not just material waste, but process waste and eliminating inefficiencies.

While this can be environmentally friendly, it's also in the end about good business practices that have real bottom-line cost savings attached.

In other words: being Green, while going lean can actually save you money. So much for the theory that being "environmental" would cost you money.

Bringing it all around

This blog is about dry ice blasting, so you had to know I'd get around to bringing all these topics together.

Again, it's simple really:

  • Dry ice blasting is a green technology that can be part of a lean manufacturing environment.
  • Dry ice blasting has already shown in many industries that it can eliminate waste (both material and process, time and resource) and can have an ROI of as little as 3 months – and that's before the new tax incentives.
  • Dry ice blasting equipment also qualifies as capital expenditure. As you've seen above, the IRS has made 2008 the best year ever to invest in capital equipment.
  • Dry ice blasting is good business.
And now it's the best year ever to invest in dry ice blasting equipment that helps you go green, be lean and get clean.

No excuses left

With all the advantages this year, you could realize an immediate ROI on dry ice blasting equipment, from day one.

Even the IRS and the EPA agree (and that's like the sun, moon and stars all being in alignment – don't expect it to happen again for a thousand years). And now they're giving you every reason to implement smart technologies like dry ice blasting.

In fact, it's as close to being free as it ever will be.

So... Shouldn't you be calling someone about this - right now?

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