Tax Breaks and Your POS

Tax Breaks and Your POS

By Robert Wagner, CPA

Uncle Sam Wants You! …… to buy equipment. Hard to believe, but true. Recently Congress passed and the President signed an extension of significant tax breaks on equipment purchases through 2009. So, buying a POS system gets you up-to-date technology and a very attractive tax deduction. Unless a business “elects out” of the tax breaks, your will write-off, i.e., get a tax deduction for, most or all of the equipment you purchase in 2009.

Give Yourself a Bonus

Bonus depreciation on equipment comes in and out of the tax laws depending on the economy. Allowing businesses to write off equipment rapidly is thought to be a good way to spur our economic recovery. Currently purchases of new, not used, equipment are subject to 50% bonus depreciation. That means if you buy new equipment in 2009, you immediately get to write off 50% of the purchase price. And then you depreciate the rest of the restaurant equipment; usually over 5 years.

So how does this work? Suppose you spend $10 thousand for a new POS system in 2009. First, take $5 thousand in bonus depreciation and then take “normal” depreciation of $1 thousand on the remaining $5 thousand tax basis. Result: for 2009 you spend $10 thousand for a POS and get $6 thousand or more in depreciation expense your tax return. That’s a 60% write-off in the first year of ownership!

What if you are operating at a net loss in 2009? You may be able to take the loss (generated partly by bonus deprecation) and get a refund of the taxes you paid the government in prior years. This is a complicated area so it’s essential you consult your tax advisor.

Write Off 100% of Your POS

The amount of equipment a small business can elect to write off in 2009 is increased to $250 thousand. So your entire purchase of a POS could easily be written off in 2009. This tax break is harder to qualify for but many businesses might overlook it. The really good news is this tax break works for purchases of both new and used equipment.

However, qualifying for this tax break, called the Section 179 Election, is harder than qualifying for bonus depreciation. The business must jump the following hurdles:

• Section 179 depreciation cannot cause or increase a tax loss for the year so the business must be profitable to qualify
• The business does not qualify if more than $800 thousand in furniture, fixtures and equipment was purchased in 2009
• The equipment cannot be purchased from a related party

Really savvy operators are combining bonus deprecation and Section 179 expensing to maximize tax deductions on equipment purchases and minimize their taxes. Contact your tax adviser for more info on how these tax breaks can make your POS purchase even more attractive.

Robert Wagner, CPA is president of NetFinancials, Inc. which provides a full range of tax and accounting outsourced services for restaurant companies. Email: bob.wagner@netfinancials.com