The Protecting Americans from Tax Hikes Act of 2015 (the PATH Act) extended 50% bonus depreciation through 2017 since it had originally expired on 12/31/2014 for most qualifying assets.
Businesses can recover the costs of depreciable property more quickly by claiming additional the first-year “Bonus” depreciation for qualified assets. Thus, the PATH Act may restore a tax-saving opportunity for 2015 you wouldn’t otherwise have had. Many businesses should benefit from claiming this break on their 2015 returns.
Qualifying Assets Eligible for Bonus Depreciation
For 2015, new tangible property with a recovery period of 20 years or less qualifies for Bonus Depreciation. This includes assets such as office furniture, equipment, off-the-shelf computer software, water utility property and qualified leasehold-improvement property. However, acquiring the property in 2015 isn’t enough to claim the deduction on your 2015 taxes.. You must also have placed the property in service in 2015.
Is Bonus Depreciation the Best Choice?
If you are eligible for Bonus Depreciation and you expect to be in the same or a lower tax bracket in future years, taking Bonus Depreciation is likely a good tax strategy. Accelerating your Bonus Depreciation will defer tax which is generally beneficial to most taxpayers.
However, delaying deductions can sometimes be the best tax advice. If your business is growing and you expect to be in a higher tax bracket in the near future, you may be better off forgoing Bonus Depreciation. Even though your 2015 tax bill may be higher than if you had taken the Bonus Depreciation, by deferring this Bonus Depreciation deduction, you’ll preserve larger future deductions on the property. This approach may be more powerful since these deferred deductions save more tax in a year when you’re in a higher tax bracket.
For example, saving $100,000 at 20% is not as valuable as deferring that deduction to years when you may be at 35-40% tax bracket. Over the course of the depreciable life, your total deductions are the same, however the tax benefit is measured by the tax rate in effect in the year that you claim a depreciation deduction.
If you are unsure whether you should take the 50% Bonus Depreciation on your 2015 tax return or you have questions about other depreciation-related breaks, such as Section 179 expensing, contact the LBMC Tax team at firstname.lastname@example.org or contact me directly at email@example.com. We would be happy to work with you. For more information, visit our tax services page.