When Bush signed his economic stimulus package, one of the little known provisions was an increase in the depreciation ceiling on the amount of money that businesses can deduct in a single year. This is a one time tax code change for 2017. The ceiling has been raised to $250,000 for equipment, furniture, computer equipment, and etc. purchased in 2017. The amount was raised from the scheduled $128,000 for 2017. It is expected to return to this level in 2018.
However businesses should be careful, companies with more than $800,000 in qualifying assets purchases are not eligible for the increased depreciation write off in 2017.
Eligible businesses include sole proprietorships, partnerships, and corporations
Depreciation Tax Breaks
Congress threw in an additional provision that small businesses can take advantage; they can depreciate 50 % of the value of a specific asset in the first year in 2017. This is up from the typical 20 % and is referred to as the “bonus depreciation.”
For example, if a company claims the full $250,000 deduction in 2017, the bonus depreciation only applies to qualifying purchases after the one time deduction is taken. So if your company purchases $350,000, the first $250,000 is eligible for the one time depreciation deduction. Then $50,000 can be counted as depreciable expenses on the remaining $100,000 – bonus depreciation. The $50,000 is higher than the $20,000 that would normally be depreciated.
Eligible properties that can be used for this deduction include machinery and equipment (vehicles over 6,000 lbs), furniture and fixtures, and most storage facilities. Examples can include other vehicles and computers.
New Tax Breaks Benefits
Unless you have other sources of income other than your business income, your taxable loss can not exceed your income. If taxable exceeds business income, you can take advantage of more of the taxable loss by combining your company earnings with those of your spouse or money earned other than through your business. For example:
- You were someone else’s employee for part of the year
- You spouse works and make more income than you do during the year
- You are in partnership with someone in another venture and you can claim your income from that partnership
Small Business Tax Breaks Summary
This is an excellent opportunity for a business to fully depreciate eligible expenses this year instead of over 5 years. You should also be aware of less obvious advantages of the one time deprecation deduction:
- Lowers adjusted gross income
- Lowers earned income, which may increase your earned income credit
- Allowed in full, even if the eligible property is placed in service on the last day of the year
- Companies who choose to acquire assets through a finance lease may depreciate the asset in the same way they would if they had purchased it outright.
- If eligible property is delivered this year, the deduction can be made this year with just one month cash outlay