Organizations benefit from 2009 Stimulus Act

A recent CFO.com article, Bonus Depreciation Boosts Cash Flows, cites a study conducted by the RiskMetrics Group which shows how some companies are benefiting financially by taking advantage of the American Recovery and Reinvestment Act of 2009 in relation to fixed assets.

The aim of the 2009 Stimulus Act, in regards to fixed assets, is to encourage companies to increase spending on major pieces of equipment by allowing them to quicken the depreciation of long-lived or capital assets. Companies currently taking advantage of the bonus depreciation are experiencing an increase in cash flow.

The American Recovery and Reinvestment Act of 2009, an extension and improvement, on the Economic Stimulus Act of 2008, includes; federal tax cuts, increases in unemployment and welfare benefits, subsidized healthcare insurance for the unemployed, and investments in infrastructure, education, energy efficient programs, and homeland security.

With about 35% of the 2009 bill dedicated to tax cuts, it contains measures specifically designed to help businesses retain and reinvest their capital through infrastructure improvements and expanded deductions for other business expenses. Most notably, the stimulus package includes a 50% Bonus Depreciation that allows companies to take more depreciation sooner on their fixed assets.

The additional depreciation that is taken effectively reduces the taxable profit that a company makes. Because its taxable profit is lower, the amount of tax a company has to pay on its profit is lower. The stimulus act doesn’t change the total amount of depreciation that is taken over the life of the asset depreciation.