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New tax law to bring big savings for 2011 kiosk purchases

April 6, 2011 by Kurt Myrick — Technical Engineer, Phoenix Kiosk

Although I usually use this spot to share my industry insights, I've invited Don Lineburg, CFO and vice president of Operations , to discuss a business incentive that may help retailers looking to deploy kiosks this year.

Enjoy!

By Don Lineburg

As domestic and international economies continue to struggle to pull themselves out of one the worst recessions in our history, the U.S. government has enacted some very attractive businesses tax incentives to encourage capital investment.

So what exactly does this mean to a customer purchasing a kiosk solution? The answer is the likelihood of very significant tax benefit that would in effect subsidize up to 40 percent of your purchase and contribute powerfully to your return on investment (ROI).

Note: You should always consult your tax adviser to ensure applicability with your own tax position, and the 40 percent benefit estimate noted is based on combined Federal and State tax rates.

So what is the source of this generous tax subsidy? There are two tax acts that are of particular interest.

Small Business Jobs Act - Increased expensing levels to $500,000

The first relates to enhanced Section 179 benefits as per the Small Business Jobs Act that increased expensing levels to $500,000 for 2010 and 2011. Recall that Sec 179 is the part of the tax code that allows the tax payer to expense capital purchases in the year acquired as opposed to having to depreciate them over their useful lives. (The reader should also note that the Sec. 179 phase-out threshold is currently $2 million.)

100 percent depreciation bonus benefit for capital investments

The second tax act (Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010) addresses what is commonly referred to as "bonus depreciation". This provision provides a 100 percent depreciation bonus benefit for capital investments placed in service after Sept. 8, 2010 through Dec. 31, 2011. For equipment placed in service after Dec. 31, 2011 and through Dec. 31, 2012, the bill provides for 50 percent depreciation bonus.

How this might work at Phoenix Kiosk

Qualifying tax payers the combined federal and state tax benefit on a $75,000 Phoenix Kiosk Solution would be approximately $30,000 (assuming a combined tax rate of 40 percent) reducing the net effective cash outlay to $45,000.

Steps for a business to take advantage of the tax laws

Practically, the taxpayer will first apply the Sec 179 benefit and then use the bonus depreciation to expense in the year acquired any remaining part of their capital investments. The bottom line is businesses could expense a new kiosk solution for tax purposes in the year acquired instead of over its, most likely, five-year useful tax life.

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