The new tax laws seem to be having a positive impact on how much business owners are investing profits back into their companies. According to a report done in April by NFIB, there is a record level of small businesses experiencing profit growth, based on the past 45 years the surveys have been done. This record level is not random either – it’s the 17th month in a row with higher readings each month.
These increased profits are turning into job creation and increasing wages and benefits, not to mention the huge investments back into businesses (61%, which includes new equipment and company vehicles). With some difficulty finding qualified employees and freelancers, the report is expecting spending to go towards training, and technology to replace labor.
So with all this great economic news, how have the tax laws changed for equipment write-offs?
Write Off Business Equipment
In the past, a business would purchase equipment and proceed to depreciate it in its taxes over the following years. With the Tax Cuts and Jobs Act, it’s now much simpler and more affordable, as you can write off costs from your gross income immediately instead of depreciating. The deduction limit is $1 million, which is applicable for new and used equipment, and off-the-shelf software.
To use the deduction, this equipment must be put into working service in that calendar year. The spending cap is $2.5 million, and the deduction phases out dollar-for-dollar after this much is spent (there is no deduction once $3.5 million is spent). That really does make this a law for incentivizing small businesses.
There is another section that allows for a “bonus depreciation” which is offered some years at a certain percentage. Some years it won’t be available (it’s available in 2018 at 100%.) Previously this section only covered new equipment, but it now covers both new and used.
- Equipment (eg. industrial machines) for business use
- Tangible property used for business
- Business vehicles weighing over 6,000 lbs
- 9+ passenger vehicles (shuttle vans, buses)
- Fully enclosed driver’s compartment (cargo area), no seating behind driver (classic cargo van)
- Heavy construction equipment
- Typical tractor trailers
- Computers and “Off-the-Shelf” software
- Office furniture and equipment
- Things purchased for partial business use (deduction is based on the percentage of time used for business purposes)
- Business building improvements (security system, fire alarms, roofing, HVAC, etc)
For vehicles that are suited for passengers and used over 50% for business, the deduction and bonus is limited to $11,160 for cars and $11,560 for trucks and vans. Exceptions to this rule include ambulances, hearses, taxis/other transport vehicles, qualified vehicles modified for business, and other heavy non-SUV (eg full cargo bed pickup trucks). More details here.
De Minimis Safe Harbor Election
This is applicable for items up to $2,500 per invoice or items that are considered non-incidental materials and supplies. For example, if you were to purchase small items for each room in an apartment complex or hotel, you would deduct their expense, but would not include them on your list of assets.
It’s a good time to be a small business owner! If you have questions about your taxes and deductions, please don’t hesitate to contact D&M Accounting. We’ll be happy to save your business as much of that hard earned money as possible!