Posted by Dennis Jao

Small Business & Equipment Purchase Write-Offs

Small Business & Equipment Purchase Write-Offs

A small business owner will need to buy essential business equipment, vehicles and gadgets over time. However, deducting such expenses for tax is not a straightforward decision due to the series of options they have. Also, the choice is hinged on whether you had a massive deduction for such an acquisition year or you can get more benefit when you deduct the expense through some years via depreciation.

 

Here are some write-offs small businesses can take advantage of:

  1. Depreciation

The general way, based on the accounting principle with which businesses write off massive purchases, is called depreciation which involves distributing such deductions over many years. Based on Uncle Sam's policy, the number of years for such write-off is a value of the asset category.

For purchases involving small businesses, such a category could be a 3, 5, or 7 years write-off. The seven-year category takes care of office furniture, equipment and fixtures, while the five-year category takes care of gadgets like PCs, copiers, etc.

 

  1. Supply and Material Expensing 

Based on IRS policy, some supplies and materials which cost $200 or below or useful life of below a year will be expended and not depreciated.


  1. De Minimis Safe Harbor Expensing 

Also, Small businesses can expense as much as $2,500 for equipment purchases. Such a limit applies to each item or invoice, which gives a vital leeway for expensive purchases—such a limit of $2,500 doubles for large businesses.

 

  1. Routine Maintenance 

Uncle Sam allows for expenditure deductions targeted at ensuring a property works correctly, in which the business needs to maintain such equipment twice for the life of such property. The class life and depreciable life differs:

Depreciable Item

Depreciable Life

Class Life

Office Furnishing

7

10

Information Systems 

5

6

Computers

5

6

Autos and Taxis

5

3

Light Trucks

5

4

Heavy Trucks

5

6


  1. Unlimited Expensing 

2017 TCJA provided a complete unlimited expenses for all business assets (tangible) obtained after the 27th of September, 2017. This comes to play when the taxpayer uses the property first, which can be new or used.

 

  1. Bonus Depreciation: 

Based on the tax code, there is a bonus depreciation amount for the first-year with which a business can deduct half of whatever new asset costs are provided, and such was used in 2017. Whatever price is left is usually deducted through the depreciable life of such an asset.


  1. Section 179 Expensing

The tax code also provides an option to expense provision for major small businesses, which allows for the expensing of any particular amount of any tangible equipment purchase cost in the same year it got into service. Generally, this tax provision is called Sec 179 expensing –the name of such a tax code.

An unwanted effect of sec 179 expensing happens on disposing of such items before their everyday depreciable life ends. When this happens, the difference you get between Sec 179 deduction and normal depreciation will be joined to income for the disposition year.

 

  1. Mixing Method: 

It is possible to use bonus depreciation, regular depreciation and sec—179 depreciation on a particular item, which allows any write-off amount for the year for such an asset. 

There are some taxpayers (individuals) in which the AMT (Alternative Minimum Tax) might be an issue. Sec 179 and Bonus depreciation are not prioritized items that will not warrant an AMT. 


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Dennis Jao
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