TAX GUY

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Under today’s federal income tax rules, your business may be able to claim big first-year depreciation write-offs for eligible assets that are placed in service in the current tax year. But is that a no-brainer? Answer: It depends. I will explain, after first covering some necessary background information. Here goes.     

The Tax Cuts and Jobs Act (TCJA) installed super-favorable first-year federal income tax depreciation breaks for business taxpayers.  

New and used qualifying business assets placed in service between 9/28/17 and 12/31/22 are eligible for 100% first-year bonus depreciation. For certain assets with longer production periods and aircraft, the placed-in service deadline is extended to 12/31/23. 

For tax years beginning in 2020, a business taxpayer can potentially write-off up to $1.04 million of the cost of qualifying new and used assets under the Section 179 deduction privilege.

Under a phase-out rule, the maximum $1.04

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a close up of a keyboard: Accountant sitting at table calculating bonus depreciation while checking ledger


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Accountant sitting at table calculating bonus depreciation while checking ledger

It’s probably the only bonus that makes you scratch your head before taking it. The next time you make a fixed asset purchase, consider claiming bonus depreciation on your business tax return.

Overview: What is bonus depreciation?

Before we discuss bonus depreciation, let’s define depreciation.

You usually can’t report the entire expense of a fixed asset in the year of purchase. It’s customary to break up the expense over a period of years. You depreciate an asset over its useful life, reflecting the time you expect the asset to generate revenue and be of use to the business.

For example, say a coffee shop purchased an espresso machine for $10,000. Instead of reporting the entire $10,000 expense on its income statement and business tax return in year one, the shop would report $1,000 in depreciation annually for

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