If you own a new business that has been open for less than one year, you can save considerable money on taxes by claiming a bonus depreciation credit. This credit allows you to claim a deduction for eligible property or equipment that you purchased for your business in addition to other types of depreciation.
The Tax Cuts and Jobs Acts
Congress changed the manner in which new business owners can claim bonus depreciation with the 2017 Tax Cuts and Jobs Act. The update includes two major provisions. First, you do not need to claim new purchases under the act but the items you buy must fall under the category of first use for your business. Secondly, you can claim a bonus depreciation credit of 100 percent for any items you purchased to use for your business after September 17, 2017. This will remain in effect until at least January 2023.
The revised act does place some restrictions on property types you can use to claim the credit. This is to ensure that you purchased the property from an external source unrelated to you.
Typical Depreciation and Bonus Depreciation
When you purchase a new item for your business, the Internal Revenue Service (IRS) allows you to spread the cost evenly over several years or for the lifetime of the equipment. The technical name for this process is straight-line depreciation.
To encourage more business owners to purchase capital assets and thus help the economy, Congress also allows bonus depreciation. This accelerated form of depreciation enables you to deduct half the cost of qualifying types of business property the same year you place the item into service. You can only take this credit for new equipment. If you choose to take it, you will need to complete IRS Form 4562 with your return next year.
As Grecco Capital, we understand that this topic can cause confusion. Please schedule an appointment with us to learn more about bonus depreciation and other IRS credits.