As a result of the tax reform and code revisions passed in December, many businesses have attained increased financial benefits and lessened tax burden by employing new tax strategies.
K·Coe Isom has been assisting businesses with strategic assessments and advice on how to utilize new provisions to capture opportunities and avoid obstacles. Our latest blog in the series on “Winning with Tax Reform” discusses clever ways businesses are positioning themselves to attain maximum tax advantages.
Is Your Tax Plan Up-To-Date and Poised for property & Equipment opportunities?
With the second half of the 2018 right around the corner, now is the time to consider (if you haven’t already) how to maximize the new tax opportunities so that you don’t lose out on money that could be in your pocket right now.
Many tax returns were extended in order to properly strategize for the implementation of the new tax provisions, so there is still time for planning.
Qualified Property Expanded and Deduction Limit Increased Under New Bonus Depreciation Provisions
Qualified property is generally property with a depreciable recovery period of 20 years or less. In general, most equipment used in a farming operation would qualify.
Under the previous tax code, the bonus depreciation deduction was limited to 50% of qualified new property. The Tax Cuts and Jobs Act expanded qualified property to include used property and the deduction was increased to 100% of qualified property placed in-service after September 27, 2017, and before January 1, 2023. Property acquired prior to Sept. 28, 2017, but placed in service after Sept. 27, 2017, would remain eligible for bonus depreciation under previous law, 50% bonus.
In later years, the first-year bonus depreciation deduction phases down, as follows:
- 80% for property placed in service after Dec. 31, 2022 and before Jan. 1, 2024.
- 60% for property placed in service after Dec. 31, 2023 and before Jan. 1, 2025.
- 40% for property placed in service after Dec. 31, 2024 and before Jan. 1, 2026.
- 20% for property placed in service after Dec. 31, 2025 and before Jan. 1, 2027.
New Tax Reform Recovery Period Rules Could Allow for Faster Depreciation on Farming Machinery or Equipment
In some cases, the asset recovery period under the new provisions decreased, which allows for faster depreciation.
For property placed in service after Dec. 31, 2017, the cost recovery period is shortened from seven to five years for any machinery or equipment (other than any grain bin, cotton ginning asset, fence, or other land improvement) used in a farming business, the original use of which commences with the taxpayer.
Increased Property Deductions Under Revised Section 179
Section 179 allows a business to immediately expense the cost of qualifying property, rather than recovering such costs through depreciation deductions.
Tax Reform has increased the maximum amount a taxpayer could deduct under Section 179 for property placed in-service after December 31, 2017 (from $520,000 to $1,000,000). The phase-out threshold increased from $2,070,000 to $2,500,000 for property placed in-service after 2017. The phase-out occurs when total Section 179 property placed in-service during a tax year exceeds the threshold amount. Additionally, both the deduction and phase-out limit will be increased for inflation beginning in 2019.
Planning Considerations
It’s important to meet with an advisor to evaluate a strategy that makes sense — and cents — for your business. With the corporate and individual tax rates reduced by the new tax code, taxpayers need to consider if they should use the benefits on the added depreciation in 2017 or in future years. If the taxpayer can use the depreciation deductions in 2017, it likely makes sense to accelerate those deductions while the tax rates are at their highest.
Contact a K·Coe Isom tax expert to assess your tax structure, evaluate new tax rules and opportunities, and implement a strategic plan to alleviate tax burden.
