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Bonus Depreciation: simplifying equipment depreciation deductions

September 14, 2020

Bonus Depreciation: simplifying equipment depreciation deductions
Small business owners looking for equipment depreciation deductions have several options to consider. Section 179 is one option that gets a lot of hype. But it has its drawbacks. There are limits to the dollar amounts that can be used to calculate deductions—and figuring it out can get complicated.
There’s a simpler and more straightforward option—and one your customers should look into. It’s Bonus Depreciation, a tax law that went into effect in 2017. Bonus Depreciation has no limits. Customers can deduct their entire purchase, as long as they finance the equipment using an Equipment Finance Agreement or a $1 Buyout lease. The one stipulation is they have to elect the deduction in the same year they acquire and install the equipment.
Will it last forever?
Unfortunately no. Just like other tax laws, both Section 179 and Bonus Depreciation are subject to legislative changes that can alter or eliminate the deductions. The good news is that Bonus Depreciation won’t change through the year 2022. It will start to phase out in 2023, when the deduction will be 80%, followed by 60% in 2024, 40% in 2025, etc. So, if your customers are planning to purchase new equipment in the near future, it’s in their best interest to purchase sooner rather than later.
Given the benefits of Bonus Depreciation, why does Section 179 get all the attention?
Maybe it’s the fact the Section 179 deduction changes each year that keeps it on everyone’s radar. A Google search for Section 179 brings up 214 million results—20 times the number of search results for Bonus Depreciation. Apparently, people like the suspense of waiting to find out what the latest acceptable deduction and limits will be. News agencies even cover the announcement.
There’s no big fuss over Bonus Depreciation, however. It’s so simple there’s nothing to talk about. Which is why it’s a better option with broader appeal. To learn more, visit https://imaginenext.ingrammicro.com/it-solution-provider/services/financial-solutions.