Use it or lose it: New Cinderella Tax Incentive

 

The new Cinderella Tax Incentive provides an incentive to IT managers to reduce their short-term costs when purchasing equipment before the end of 2011.

Called the “Cinderella” tax break because it expires at the end of the year, this accelerated Bonus Depreciation allows retailers to accelerate five years of equipment depreciation into one year—2011. This can significantly reduce retailer short-term costs.

This year businesses may pay up to 28% less cash out after tax by taking advantage of the 100% Bonus Depreciation. This means that for a $1 million purchase, businesses in the 35% corporate income tax bracket would save $280,000 in tax this year (2011) than if the purchase were to close in 2012. This is illustrated in the example below.

The 100% Bonus Depreciation lets the U.S. government subsidize capital expenditure purchases in 2011.

Speaking with your tax advisor is the first step to taking advantage of this new incentive.


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