cpa, business advisors, portland

How Small Businesses Write Off Equipment Purchases

Article Highlights:

  • Depreciation
  • Materials & Supplies
  • De Minimis Safe Harbor Expensing
  • Routine Maintenance
  • Unlimited Expensing
  • Bonus Depreciation
  • Sec 179 Expensing
  • Mixing Methods

From time to time, an owner of a small business will purchase equipment, office furnishings, vehicles, computer systems and other items for use in the business. How to deduct the cost for tax purposes is not always an easy decision because there are a number of options available, and the decision will depend upon whether a big deduction is needed for the acquisition year or more benefit can be obtained by deducting the expense over a number of years using depreciation. The following are the write-off options currently available.

  • Depreciation – Depreciation is the normal accounting way of writing off business capital purchases by spreading the deduction of the cost over several years. The IRS regulations specify the number of years for the write-off based on established asset categories, and generally for small business purchases the categories include 3-, 5- or 7-year write-offs. The 5-year category includes autos, small trucks, computers, copiers, and certain technological and research equipment, while the 7-year category includes office fixtures, furniture and equipment.
  • Material & Supply Expensing – IRS regulations allow certain materials and supplies that cost $200 or less, or that have a useful life of less than one year, to be expensed (deducted fully in one year) rather than depreciated.
  • De Minimis Safe Harbor Expensing – IRS regulations also allow small businesses to expense up to $2,500 of equipment purchases. The limit applies per item or per invoice, providing a substantial leeway in expensing purchases. The $2,500 limit is increased to $5,000 for businesses that have an applicable financial statement, generally large businesses.
  • Routine Maintenance – IRS regulations allow a deduction for expenditures used to keep a unit of property in operating condition where a business expects to perform the maintenance twice during the class life of the property. Class life is different than depreciable life.

 

Depreciable

Item

Class

Life

Depreciable

Life

Office Furnishings 10 7
Information Systems 6 5
Computers 6 5
Autos & Taxis 3 5
Light Trucks 4 5
Heavy Trucks 6 5

 

  • Unlimited Expensing – The Tax Cuts and Jobs Act passed in December 2017 ncludes a provision allowing 100% unlimited expensing of tangible business assets (except structures) acquired after September 27, 2017 and through 2022. Applies when a taxpayer first uses the asset (can be new or used property).
  • Bonus Depreciation – The tax code provides for a first-year bonus depreciation that allows a business to deduct 50% of the cost of most new tangible property if it is placed in service during 2017. The remaining cost is deducted over the asset’s depreciable life. The 50% rate applies for new property placed in service prior to September 28, 2017 and, by election, to new or used property acquired and first put into use by the taxpayer after September 27, 2017 and before December 31, 2017.
  • Sec 179 Expensing – Another option provided by the tax code is an expensing provision for small businesses that allows a certain amount of the cost of tangible equipment purchases to be expensed in the year the property is first placed into business service. This tax provision is commonly referred to as Sec. 179 expensing, named after the tax code section that sanctions it. The expensing is limited to an annual inflation adjusted amount, which is $510,000 for 2017 and $1 million for 2018. To ensure that this provision is limited to small businesses, whenever a business has purchases of property eligible for Sec 179 treatment that exceed the year’s investment limit ($2,030,000 for 2017 and $2.5 million for 2018), the annual expensing allowance is reduced by one dollar for each dollar the investment limit is exceeded.

An undesirable consequence of using Sec. 179 expensing occurs when the item is disposed of before the end of its normal depreciable life. In that case, the difference between normal depreciation and the Sec. 179 deduction is recaptured and added to income in the year of disposition.

  • Mixing Methods – A mixture of Sec. 179 expensing, bonus depreciation and regular depreciation can be used on a specific item, allowing just about any amount of write-off for the year for that asset.

For some individual taxpayers the alternative minimum tax (AMT) may be a concern. Bonus depreciation and Sec. 179 expensing are not preference items, and therefore their use will not trigger an AMT add-on tax. However, the difference between 200% MACRS depreciation, if claimed, and 150% MACRS depreciation is a preference item for AMT and could cause or add to the AMT tax.


Isler Northwest LLC is a firm of certified public accountants and business advisors based in Portland, Oregon. Our local, regional, and global resources, our expertise, and our emphasis on innovative solutions and continuity create value for our clients. Our service goals at Isler NW is to earn our clients’ trust as their primary business and financial advisors.

Isler Northwest

(503) 224-5321

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Suite 2900
Portland, Oregon 97201

isler northwest, cpa

Medical Deductions & The New Tax Law

Article Highlights:

  • Medical Deductions Retained by the Tax Reform Law
  • Adjusted Gross Income Floor Dropped to 7.5%
  • The Standard Deduction
  • Bunching Medical Deductions
  • Unusual Medical Deductions
  • Medical Dependents
  • Divorced Parents

Note: The is one of a series of articles explaining how the various tax changes in the GOP’s Tax Cuts & Jobs Act (referred to as “the Act” in this article), which passed in late December of 2017, could affect you and your family, both in 2018 and future years. This series offers strategies that you can employ to reduce your tax liability under the new law. Read more

isler, cpa, accountants, portland, oregon

9 Best Ways to Start a Business Budget to Spur and Guide Growth

Building a business is a process that requires careful attention to many individual points, all with the goal of increasing customers, improving products, and building profit. There are many elements that contribute to the ability of a company to grow. One key area to focus on is the budget. From the foundation of the business, a well-planned budget can create a financially sound business with clear directions. To achieve that, consider these nine key ways to create an effective budget that spurs and guides the growth of your company. Read more

financial advisors, portland, oregon

If You Owe the IRS a Lot of Money, You May Not Want to Plan Any Out-of-the-Country Trips

Article Highlights:  

  • Seriously Delinquent Tax Debt
  • Exceptions
  • Passport Denial or Revocation

As promised several months back, the IRS has begun to crack down on seriously delinquent taxpayers. A law passed on Dec. 4, 2015, requires the IRS to notify the U.S. State Department when someone has “seriously delinquent tax debt,” after which the State Department will generally deny an application for issuance or renewal of a passport for that individual and can even revoke or limit a previously issued passport. Read more

isler northwest, portland

Personal Casualty Losses Axed by the New Tax Law

Article Highlights:

  • Casualty Losses
  • Deduction Suspension
  • Disaster Related Casualty Losses
  • Insurance Coverage

Note: The is one of a series of articles explaining how the various tax changes in the GOP’s Tax Cuts & Jobs Act (referred to as “the Act” in this article), which passed in late December 2017, could affect you and your family, in both 2018 and future years. This series offers strategies that you can employ to reduce your tax liability under the new law. Read more

cpa firm, portland, oregon

Tax Reform Cracks Down on IRA Recharacterizations

Article Highlights:

  • Tax Trap
  • Traditional IRA
  • Roth IRA
  • Traditional to Roth Conversions
  • Undoing a Conversion

Note: The is one of a series of articles explaining how the various tax changes made by the GOP’s Tax Cuts & Jobs Act (referred to as the “Act” in the article), passed late in December 2017, might affect you and your family in 2018 and future years, and offering strategies you might employ to reduce your tax liability under the new tax laws Read more

isler, financial advisors, cpa, portland

New Tax Law Cracks Down on Home Mortgage Interest

Article Highlights:

  • Acquisition Debt Interest
  • Equity Debt Interest
  • Consumer Interest
  • New Tax Law Changes

Note: The is one of a series of articles explaining how the various tax changes made by the GOP’s Tax Cuts & Jobs Act (referred to as the “Act” in the article), passed late in December 2017, might affect you and your family in 2018 and future years, and offering strategies you might employ to reduce your tax liability under the new tax laws.  Read more

isler, business advisors, cpa, portland

Will Your 2018 Withholding Be Right?

Article Highlights:

  • Tax Cuts & Jobs Act
  • Wage Withholding Tables
  • W-4
  • Be Cautious with Adjusted Withholding

Note: The is one of a series of articles explaining how the various tax changes made by the GOP’s Tax Cuts & Jobs Act (referred to as the “Act” in the article), passed late in December 2017, might effect you and your family in 2018 and future years, and offering strategies you might employ to reduce your tax liability under the new tax laws.
Read more

business advisors, portland, oregon

4 Money Lessons Every Teenager Needs to Know

Article by Katherine Vasel | Found on CNN

It’s time to talk to your teenager about money.

The teen years may be the first time kids start to earn their own money. And establishing good habits now can pay dividends well into their future.

Plus, teaching kids to be smart about money will have benefits for parents too.

“Clients that have been more transparent with their kids tend to have children that are smarter with money,’ said Bill Van Sant, a certified financial planner and senior vice president at Univest Wealth Management. “Parents that may not be as transparent tend to have children that stay in the house a little longer.” Read more

home equity, retirement

Is 2018 the year to buy a house?

Article by Katherine Vassel | Found on CNN

Home buyers aren’t going to catch much of a break this year.

Sellers will remain in the driver’s seat as buyers continue to face affordability issues thanks to low housing supply.

“The challenges for buyers in the market haven’t changed that much from last year” said Keith Gumbinger, vice president of mortgage website HSH.com. Read more