3 Year-End Tax Moves To Consider
Chris Santy
Patriot Capital
There’s a lot of press these days about the potential for significant changes to the tax code before year end. What, or how, the tax act changes is a source of debate and political horse trading. However it turns out, here’s three considerations that you should discuss with your accountant or tax advisor to determine if they can save you money in this tax year. Combining these strategies may yield significant cash flow and profit benefits.
- Increased after tax equipment costs under new tax act.
A lot of the discussion about the tax changes focuses on the impact of lower tax rates for many businesses. These lower tax rates also have the impact of lowering the value of equipment depreciation, a common tax deduction. For example, if you are in a 30% tax bracket the depreciation benefit on a $15,000 dispenser would be worth $4,500 in tax savings. If the tax rate changes to 20%, this deduction is now worth $3,000, making the dispensers after tax cost $1,500 higher.
- Section 179 accelerated depreciation.
Under the current tax law, businesses are eligible for up to $500,000 of ‘accelerated depreciation’, meaning that rather than depreciating equipment over it’s useful life it may be fully depreciated in the current tax year. In the example above, this means that first year tax savings could be $4,500 rather than $643 if the equipment was deprecated over 7 years.
- Bonus depreciation.
New equipment purchases of between $500,000 and $2,000,000 are eligible for bonus deprecation. In 2017, 50% of the cost may be deducted to improve your cash flow and reduce your taxes. This amount falls to 40% in 2018, 30% in 2019, and 0 from 2020 onward.
The current tax reform proposal appears to propose immediate expensing of capital equipment purchases. This provides all businesses with the benefits of Section 179 and improves the Bonus Depreciation deduction from 40% in 2018 to 100%. However these benefits will be in a 20% tax environment, reducing the after tax benefits to some businesses.
If you are considering purchasing new equipment, capturing the depreciation benefit at today’s higher tax rate using Section 179, and paying lower taxes on the profits this equipment generates seems like a winning strategy.
Patriot Capital does not provide tax advice. These examples are for informational purposes only. Please consult your tax professional for advice regarding your specific situation.
