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SEARCHIf you were thinking about remodeling the salon, this might be the time to fasttrack your plans. Earlier this year, Congress approved the Economic Stimulus Act in the hopes of aiding a sputtering economy. In addition to the individual tax rebates, the Economic Stimulus Act contains a provision that offers businesses increased tax deductions on purchases they make before the end of the year.
If you were thinking about remodeling the salon, this might be the time to fasttrack your plans. Earlier this year, Congress approved the Economic Stimulus Act in the hopes of aiding a sputtering economy. In addition to the individual tax rebates, the Economic Stimulus Act contains a provision that offers businesses increased tax deductions on purchases they make before the end of the year. “This opportunity is only available in 2008, so if you want to take advantage you must act quickly,” says Steve Sleeper, executive director of the Professional Beauty Association.
Before the Stimulus Act was signed into law, leasehold improvements were depreciated and deducted over 39 years regardless of the term of the lease. However, the new law off ers some favorable incentives. “The taxpayer can deduct 50% of the cost in 2008. This can be a very attractive incentive for business owners,” says Sleeper.
He cites a couple of examples to show how important this can be for salon owners.
Example 1: Normal Law
Hairball Beauty Business is planning to spend $78,000 for a major remodel (not including fi xtures and equipment). Under the normal laws, Hairball Beauty will be able to deduct $2,000 per year ($78,000 ÷ 39 years). Assuming a 33% tax bracket, Hairball Beauty will save $660 per year for 39 years.
Example 2: Stimulus Act
Assume the same facts as in Example 1, except that Hairball Beauty Business does the remodel in 2008. Because of the Economic Stimulus Act, Hairball Beauty can deduct 50% in 2008, plus normal depreciation on the remaining 50%. So in 2008, Hairball Beauty has a write-off of $39,000 ($78,000 x .50) + $1,000 ($39,000 ÷ 39 years). This results in a tax savings of $13,200 plus $330 for the next 38 years.
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