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Huge Tax Break for Business Machinery – Must Act Fast

The 2017 tax-code overhaul has left behind quite a lucrative benefit, which is set to start being reduced in 2023. While most people rely on the classic gift or charity write-off, the end of this year is presenting people with a tremendous tax opportunity.

Bonus Depreciation

Bonus Depreciation is a temporary benefit, and it gives taxpayers the ability to fully deduct any asset that is used for business operations and has a “Usable life” of 20 years or less. This means that rather than writing off or depreciating the asset over a long period, taxpayers will receive the full deduction for the asset immediately.

The intention of offering this temporary benefit is to boost domestic production and employment throughout the entire United States. Bonus depreciation will allow businesses the opportunity to recover more efficiently when it comes to the business’s purchases and investments in machinery, and other assets included in the benefit. Other assets that are included in this limited-time tax break include luxury vehicles, SUVs, and software.

Take Immediate Action

The benefit will begin to dwindle once 2023 arrives, leaving a little over a month for business owners to lock in the full value of the asset. This is why business owners need to talk with their accountants and advisors and get everything needed in order before January 1st, 2023.

The more costs a business writes off, the lower its taxable income becomes. The amount the business owes to the IRS also decreases when it comes time to file, so this is not something business owners want to miss out on.

Break Down

There is a catch, however, as next year, taxpayers will only be able to deduct 80% and not the full 100% they can take advantage of now. This deduction will then continue to drop by 20% every single year until it reaches an abysmal 20% in 2026. This ultimately furthers the importance of acting fast, as the 100% deduction will not be around for long.

Advantages of Tax Perk

High-income businesses such as hedge funds have used this benefit to their full advantage as we have seen the purchases of luxury private jets that can result in hundreds of thousands, and sometimes millions of dollars being deducted, as long as all IRS requirements for the deduction are met.

IRS Requirements

When it comes to claiming a 100% deduction, the rules and guidelines of the IRS are extremely strict. According to the IRS, the asset must be used for business purposes at least 50% of the time. When it comes to the amount of money being deducted, the deduction is equal to the percentage of the purchase price or the annual leasing costs. The percentage is also based on the amount of time the asset is used for purposes of the business.

Wrap Up

This benefit is one of the first benefits that was included in the Trump Administrations 2017 Tax Cuts and Jobs Act that will be phased out or ended altogether. Time is dwindling for business’s to claim this deduction. Talk with your accountant or advisor to go over your businesses assets and ultimately figure out if bonus depreciation can be taken advantage of by your business.

 
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