New Equipment Costs

Business equipment, furniture, vehicles, and off-the-shelf computer software can be depreciated over several years, or the full cost can be deducted in the year of purchase as a Section 179 expense. The Protecting Americans from Tax Hikes Act of 2015 (PATH) makes Section 179 expensing limit permanent at the $500,000 level. Businesses exceeding a total of $2 million of purchases in qualifying equipment have the Section 179 deduction phase-out dollar-for-dollar and completely eliminated above $2.5 million. Additionally, the Section 179 cap will be indexed to inflation in $10,000 increments in future years. In 2017, the expensing limit is set at $510,000, with a total investment limit of $2,030,000 before phaseout begins. Both limits are indexed to inflation.

Buy business supplies at the end of a profitable year and accelerate other expenditures like repairs and maintenance.

Bonus Depreciation

In the Protecting Americans from Tax Hikes Act of 2015 (PATH) bonus depreciation will be extended through 2019. Businesses of all sizes will be able to depreciate 50 percent of the cost of equipment acquired and put in service during 2015, 2016 and 2017. Then bonus depreciation will phase down to 40 percent in 2018 and 30 percent in 2019.

PATH modifies the AMT rules to increase the amount of unused AMT credits that can be claimed in lieu of bonus depreciation. Bonus depreciation will now be allowed for “qualified improvement property.” PATH also specifies that certain trees, vines, and fruit-bearing plants will be eligible for bonus depreciation when planted, rather than when placed in service.

Mid-Quarter Convention

Maximize your depreciation deduction by planning qualifying purchases before the end of the year. You may also avoid what is known as the "mid-quarter convention," which occurs when more than 40% of your total new property is placed in service during the last 3 months of the tax year. Purchases fully deducted as Section 179 expenses are removed from the mid-quarter convention computation.

Cost Segregation Studies

To maximize your depreciation deductions, consider a cost segregation study. By identifying and pricing the nonstructural items and land improvements separately from your building, it's possible to accelerate depreciation. These items have much shorter depreciable lives than the assigned 39-year life for nonresidential real property. Landscaping, parking lots, decorative fixtures, cabinets, and security equipment are some examples of assets that may need proper classification.