Companies to lose equipment-finance tax breaks in 2012

Two generous tax breaks small-business owners received during the recession are going to shrink dramatically in 2012. That makes year-end tax planning more important than usual.

The changes affect the deductions for purchases of equipment. One is called the Section 179 deduction, named for a provision of the Internal Revenue Code. The other is called bonus depreciation. Congress approved the breaks to make it easier for small businesses to expand and hire workers. Although the economy is still slow, the breaks are being scaled back.

Ed Smith, a tax partner at the accounting and consulting firm BDO in Boston, says he's talking with clients about whether it makes sense to buy equipment before the changes take effect.

"Understand that we're not going to have this deduction in the next couple of years," he said.

The Section 179 deduction allows a small business to deduct upfront rather than depreciate the cost of equipment, such as computers, vehicles, machines in manufacturing, office furniture and sheds.

The deduction for 2011 is $500,000. In 2012, it will drop to $125,000. And in 2013, it's expected to fall to $25,000 — the amount it was back in 2002.

Bonus depreciation allows small businesses to take a deduction for equipment expenses beyond the amount allowed under Section 179. For 2011, the bonus depreciation is 100 percent. The maximum that can be deducted under the two deductions combined is $2 million. In 2012, bonus depreciation drops to 50 percent.

Under normal depreciation rules, the cost of equipment is deducted over a number of years according to a formula set by the IRS. So the Section 179 and bonus depreciation provisions have given small businesses accelerated tax savings.

You can learn more about the deductions in IRS Publication 946, "How to Depreciate Property." It goes into detail about the deductions and the regulations that govern how they can be taken. For example, the Section 179 deduction can't be used for your new heating and air conditioning unit. But that equipment can be depreciated.

It's also a good idea to discuss your plans with an accountant or tax attorney.

Changes in the tax law shouldn't be the biggest reason for buying equipment. Deductions aren't worth it if you're wasting your money on something your business doesn't need. But if you've been debating whether to buy tablet computers for your employees or install manufacturing equipment in 2011 or in 2012, it might make sense to move the purchase into this year. If you can get a better price than you would next year, that's another reason to buy now.

A big caveat: The equipment has to be up and running by Dec. 31. You can't order a new server or drill press this year, have it delivered in January and still take the deduction. You have to be able to use it — which means it needs to be installed — by the end of the year. However, it's OK if you don't pay for the equipment until next year, or if you're going to take several years to pay it off.

Something else to think about is whether you want to take advantage of these deductions now. You're not required to use Section 179 and bonus depreciation. In fact, you need to elect to take a Section 179 deduction when you file IRS Form 4562, "Depreciation and Amortization."

Depending on what your profits look like this year, and what they're likely to be in the coming years, you might prefer to use regular depreciation. So you might want to postpone your purchase until next year.

Smith says the money owners will save on their taxes from Section 179 and bonus depreciation can help them pay for the equipment they've bought. But using these deductions will eliminate any tax savings you would have had from depreciating equipment over time. Smith points out that when equipment is depreciated under regular rules, the tax savings from that can be used to cover principal payments if the equipment was financed. And the interest on financing is deductible.

Again, it's a good idea to consult a tax professional to decide which approach makes the most sense for your business. Source http://www.modbee.com/2011/10/26/v-print/1919770/tax-breaks-on-business-equipment.html

Equipment Finance Industry Confidence Declines in August

 Washington, DC, August 19, 2011 –- The Equipment Leasing & Finance Foundation (the Foundation) releases the August 2011 Monthly Confidence Index for the Equipment Finance Industry (MCI-EFI) today.  Designed to collect leadership data, the index reports a qualitative assessment of both the prevailing business conditions and expectations for the future as reported by key executives from the $521 billion equipment finance sector.  Overall, confidence in the equipment finance market is 50.0, down from the July index of 56.2, indicating apparent industry reaction to U.S. economic conditions and federal government fiscal management and policies.

When asked about the outlook for the future, survey respondent Russell Nelson, President, Farm Credit Leasing Services Corporation, said, “Pent-up demand for replacement assets and improving conditions in select industries may continue to drive strong results for the remainder of 2011.   The key to future business confidence rests with leadership in Washington, DC, and their ability to craft a budget that Wall Street, Main Street, and the global community view positively.”

August 2011 Survey Results:

The overall MCI-EFI is 50.0, a decrease from the July index of 56.2.

•  When asked to assess their business conditions over the next four months, 13.2% of executives responding said they believe business conditions will improve over the next four months, slightly decreased from 14.0% in July.  65.8% of respondents believe business conditions will remain the same over the next four months, a decrease from 81.4% in July.  21.1% of executives believe business conditions will worsen, a sharp increase from 4.7% in July. 
• 21.1% of survey respondents believe demand for leases and loans to fund capital expenditures (capex) will increase over the next four months, an increase from 14% in July.  57.9% believe demand will “remain the same” during the same four-month time period, a decrease from 74.4% the previous month.  21.1% believe demand will decline, up from 11.6% who believed so in July. 

• 21.1% of executives expect more access to capital to fund equipment acquisitions over the next four months, down from 23% in July.  73.7% of survey respondents indicate they expect the “same” access to capital to fund business, a decrease from 76.7% the previous month.  5.3% of survey respondents expect “less” access to capital, the first time in nine months any respondents said they expect “less” access to capital.
• When asked, 23.7% of the executives reported they expect to hire more employees over the next four months, down from 32.6% in July.  65.8% expect no change in headcount over the next four months, an increase from 58% last month, while 10.5% expect fewer employees, an increase from 9.6% in July.   

• 55.3% of the leadership evaluate the current U.S. economy as “fair,” down from 72% who did in July.  44.7% rate it as “poor,” up from 27.9% last month. 

• 5.3% of survey respondents believe that U.S. economic conditions will get “better” over the next six months, down from 9.3% in July.  63.2% of survey respondents indicate they believe the U.S. economy will “stay the same” over the next six months, down from 79% in July.  31.6% responded that they believe economic conditions in the U.S. will worsen over the next six months, up from 11.6% who believed so last month.   

• In August, 28.9% of respondents indicate they believe their company will increase spending on business development activities during the next six months, down from 44.2% in July.  68.4% believe there will be “no change” in business development spending, up from 55.8% last month, and 2.6% believe there will be a decrease in spending, up from no one who believed so last month.  

 August 2011 MCI Survey Comments from Industry Executive Leadership:

Depending on the market segment they represent, executives have differing points of view on the current and future outlook for the industry.

Bank, Middle Ticket

“Until such time that the federal government can remove the unpredictability related to taxes and fiscal policy the economy will continue to sputter as the business community will be very cautious with respect to additional investment. This scenario will not bode well for the equipment finance industry.”  Executive, Middle Ticket, Bank

Independent, Middle Ticket

“Growth is slower than expected but we are seeing some positive signs of larger capital expenditures.”  Aylin Cankardes, President, Rockwell Financial Group

 Bank, Small Ticket

“Recent actions in D.C. make our environment very uncertain.” Executive, Small Ticket, Bank

Why an MCI-EFI?

Confidence in the U.S. economy and the capital markets is a critical driver to the equipment finance industry. Throughout history, when confidence increases, consumers and businesses are more apt to acquire more consumer goods, equipment and durables, and invest at prevailing prices. When confidence decreases, spending and risk-taking tend to fall. Investors are said to be confident when the news about the future is good and stock prices are rising.

Who participates in the MCI-EFI?

The respondents are comprised of a wide cross section of industry executives, including large-ticket, middle-market and small-ticket banks, independents and captive equipment finance companies.  The MCI-EFI uses the same pool of 50 organization leaders to respond monthly to ensure the survey’s integrity.  Since the same organizations provide the data from month to month, the results constitute a consistent barometer of the industry's confidence.

How is the MCI-EFI designed?

The survey consists of seven questions and an area for comments, asking the respondents’ opinions about the following:

1. Current business conditions
2. Expected product demand over the next four months
3. Access to capital over the next four months
4. Future employment conditions
5. Evaluation of the current U.S. economy
6. U.S. economic conditions over the next six months
7. Business development spending expectations
8. Open-ended question for comment

What Segments of Equipment Leasing Have the Most Optomistic Outlook?

According to ELT Magazine there is considerable improvement in the industry overall from last year.  According to a recent study done by the ELFA the industry is returning to prerecession levels and a greater volume of equipment is expected to be leased in 2011.  So what industries are leading the comeback?  Here they are ranked from highest-rated to lowest-rated.
Medical
Oil/gas/energy
Machine tools
Truck/Trailers
Hi-Tech/Computers
Aircraft
Rail
Container
Construction
Telecom
Marine/Intercoastal
Automobiles
Plastic
FF&E
Printing

Medical Equipment has been leader of the pack when it comes to growth the last 6 years.  With the rising demand it is expected to be a 57 Billion dollar industry by 2017.  The medical industry's preference for leased equipment is fueled by the "baby-boomer" generation.  There are some challenges facing health care growth including the "reform" proposals, various potential reimbursement cuts, rules and other things aimed at the industry.  All of these factors make used equipment more and more attractive.

Oil/Gas/Energy markets are improving, due impart to optimism and opportunities for "clean energy" technology and equipment.  There is also a drilling boom in natural gas and oil that has given solid increased value to drilling rigs.

Machine Tools are up thanks to the turnaround in the domestic and international manufacturing sectors.  This market has seen an 85% growth, which is linked to the financing of smaller ticket sizes and one-off deals.  The secondary market demand for machine tools has also played a part in the growth of this sector.

Trucks/Trailers experienced  the greatest overall improvement from last year.  Both new and used trailers increased as the freight tonnage index steadily improves month over month.

Hi-Tech/Computers showed a small decline, but demand continues to grow.   The industry has low margins and demand for upgrades that were put off the past few years will begin to catch up and add to growth.

Aircraft has shown some growth in the commercial structure and the private sector demand is on the rise, particularly the business jet segment.  We will keep our eyes on this industry and measure the effects of the rising price of fuel and effects it will generate.

Rail is still soft, but the demand for over 300,000+ rail cars is creating some buzz.  This market should see a steady and consistent turnaround.

Containers seem to be experiencing tremendous growth as production volume has increased by 10 times over. Conditions for growth are strong and will remain so for the future.

Construction seems to be in a constant battle with the market.  The segment is still soft, although many resellers are experiencing shortage in used equipment.  New equipment is still slow and has seen a decline over the past two years.  The opportunity to buy low and sell high presents itself for the future.

Telecom equipment is turning the corner as demand expands.  With the increase of broadband capacity related to video and data transfer the industry is ramping up.  Long term evolution to accommodate 4G mobile phones will keep growth steady.

Marine/Intercoastal saw declines due mainly in part to supply and demand issues.  The container shipping segment is rapidly outpacing with deliveries of new container ships.

For more information on industry outlooks visit http://www.elfaonline.org/  For specific data on leasing options contact Mazuma Capital 801-816-0800 http://www.mazumacapital.com/

Signs of Optimisim

In a recent survey through Bank of America there is a generally positive and encouraging outlook for 2011 according to CFO’s. As global credit markets ease, CFO’s are taking notice.  Over 60% of CFO’s are expecting revenue growth within their companies. With manufacturing and services at the forefront of the robust turnaround, many companies are looking to hire additional employees.  Along with the new hires come additional R&D expenses, which will most likely push capital expenditures and borrowing needs comparable to pre-recession levels.

The majority of companies will seek financing this year.  In terms of borrowing 24% of CFO’s believe their needs will increase. 

*Source:  Monitor Daily Feb. 2011

Equipment Leasing Industry Find Companies Are Purchasing Equipment Again

(Reuters) - A key measure of U.S. business activity rose sharply in February from a year ago, as companies borrowed more to invest in their operations, but the reading was down slightly from the prior month and credit quality eased, a lender group told Reuters on Tuesday.

The Equipment Leasing and Finance Association (ELFA) said U.S. businesses originated $4.1 billion in loans, leases and lines of credit in February to invest in everything from computer hardware to office furniture and machinery.

That was slightly below January's $4.2 billion total and well below December's $9 billion figure, but up 28 percent from a year ago, when the U.S. economy was beginning its gradual recovery.

February marked the 10th consecutive month of year-over-year gains, and the third straight month such gains were above 20 percent.

"It's a nice, steady trendline up," said ELFA President and CEO William Sutton. "Everything we are seeing throughout the economy (points to) steady, albeit slow, growth."

http://www.reuters.com/article/2011/03/22/us-usa-economy-elfa-idUSTRE72L4Y120110322