When you’re wrapping up the year, you will likely have a few key financial metrics on your mind, like net income and its accompanying tax liability. As you work to manage that tax liability, don’t forget about bonus depreciation.
What is Bonus Depreciation?
Bonus depreciation is a tax incentive that allows businesses to deduct additional value of equipment in the same year it was purchased, beyond the amount the business would be able to deduct regularly.
As any good accountant or banker could tell you, the purchases you make for your business depreciate over time. Each year, the “value” of the item goes down by a specified increment. This lessens your tax liability on that piece of equipment.
Historically, bonus depreciation has been an incentive offered by the Federal government to spur spending, enabling businesses to depreciate the first year’s value plus an additional percentage of that annual amount. Some years, bonus depreciation has been at 100 percent, equating to one full year of depreciation, plus another full year. However, bonus depreciation is not guaranteed to be offered every year, and certainly not at this level.
Benefits of Bonus Depreciation
The benefit of bonus depreciation all comes down to tax liabilities. By having equipment in place within the calendar year – even for one day – you have the benefit of having it the whole year, plus an additional “bonus” percentage. The bottom line: It can save your business money.