When you own a business, keeping an eye on your incoming revenue and expenses will often be a normal part of your weekly or daily routine. But in terms of tax planning, watching your company’s bottom line alone isn’t enough. There are plenty of other factors in play too!
Looking into two key areas of the business tax code could help you lower your overall tax liability. Every scenario is different, which is why it’s important to have a clear strategy.
Tax Code Section 179 for 2022
The first special provision to consider is Section 179. This part of the tax code allows you to expense, rather than depreciate, certain qualified assets for your business. For 2022, this limit was raised to $1.08 million.
Companies are able to maximize their Section 179 expenses as long as the total amount of assets purchased throughout the year are no more than $2.7 million. You can claim this benefit for new or used equipment, or even qualifying software that you put in service during the tax year. Talking with your accountant can help you make sure that no expenses get overlooked.
First-Year Bonus Depreciation
Some types of business property that were purchased in 2022 and put into service before 2023 may allow you to claim 100 percent of the property’s cost as a first-year bonus depreciation. After this initial year, the tax code will implement an annual phaseout to lower the deduction percentage of the bonus.
Eligibility for this bonus depreciation works for both new and used property. However, it can’t have already been in-use by the business at the time it was acquired. There are a few other exclusions within this part of the tax code, as well. The details can get tricky, but with the right guidance you can start to hone in on the tax preparation plan that will be best for you.
What’s Best for Your Business Tax Strategy?
Gearing up for the tax season naturally comes with a lot of questions; and while taking advantage of these tax code provisions may be useful, business owners are not required to claim the bonus depreciation expenses.
The short-term savings for these provisions can definitely be appealing, but it’s always important to have a long-term perspective. If you decide to use the special asset-expensing provisions this year, that means that you won’t be able to claim the depreciation expense in future years. Depending on the asset you purchased, that additional tax exposure could last for a decade or more!
Being able to forecast your pre-tax earnings is a crucial part of the decision-making process. If you’re looking for guidance along the way, an experienced business accountant can help. Our team at NSO & Company loves working with small business owners. Let us review your options moving forward. The right strategy can set you up for success both for the current tax year and protect your earnings well into the future. Please send us a message to schedule a consultation.
