Depreciation for dummies…really smart small business, freelancer dummies

Depreciation, pimp my assets!

In sum, the Man (Amerika) has this concept called depreciation, which allows businesses to depreciate—or gradually deduct the cost of —assets such as equipment, fixtures, furniture, etc., that will last more than one year. Learn more here, via Turbotax. 

Depreciation’s always been a good deal for capital intensive businesses large and small. The old rules provided a 50% bonus depreciation for qualified assets acquired, but these assets had to be purchased new, not used.  Still, a pretty good deal, especially when talking real estate and vehicles.

Depreciation: A good deal for some.

For example, you’d get to lower your taxable income by thousands every year by using your building or car for business.  Wage earners/W2s got a few breadcrumbs,, but they were always limited; however, since the Tax Cuts and Jobs Act of 2017, businesses got a huge windfall, and have even MORE reason to “acquire” assets and wage earners get almost NO breaks for doing essentially the same thing. No arguing the morality, just spitting facts.  So, here’s what you need to know:

Bonus Depreciation, A better deal for fewer

Under the new rules, YOU, you really smart small business dummy, can take 100% bonus “expensing” of qualified assets that are new or used., acquired and placed in service after September 27, 2017. The percentage of bonus depreciation phases down in 2023 to 80%, 2024 to 60%, 2025 to 40%, and 2026 to 20%. After 2026 there is no further bonus depreciation. This bonus “expensing” should not be confused with expensing under Code Section 179 which has entirely separate rules,

A few more resources

https://www.irs.gov/pub/irs-pdf/p946.pdf

https://www.irs.gov/newsroom/new-rules-and-limitations-for-depreciation-and-expensing-under-the-tax-cuts-and-jobs-act

 

***Disclaimer** This response was prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. Attorney advertising. If you have any more questions, reach out to the team at ScotchPalm.com—fearlessly connecting the dots for entrepreneurs.

 


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