New Equipment Costs

Business owners can use the Section 179 expense deduction for new business equipment, furniture purchases, vehicles, and off-the-shelf computer software. Because Section 179 expensing allows you to take an upfront deduction on purchases, it can be a convenient alternative to depreciating the cost of equipment over time.

In 2019, small businesses can expense up to $1,020,000 of Section 179 property, with a phase-out threshold of $2,550,000. The Tax Cuts and Jobs Act of 2017 increased the expenses up to $1 million for 2018 and beyond. Businesses exceeding a total of $2.5 million of purchases have the deduction phase-out dollar for dollar. Additionally, the Section 179 cap will be indexed to inflation starting in 2019.

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

Bonus Depreciation

Under the Tax Cuts and Jobs Act of 2017, a 100% first-year deduction is allowed for qualified property acquired and placed into service after September 27, 2017 and before 2023. The 100% allowance is phased down starting after 2023: 80% in 2023, 60% in 2024, 40% in 2025, and 20% in 2026, with none allowed after 2026.

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.

The Tax Cuts and Jobs Act of 2017 expanded the ability to expense qualifying property immediately. Qualifying assets placed in service between September 27, 2017 and December 31, 2022, are eligible for immediate expensing. After 2022, the deduction phases out by 20% each year. Examples of assets that may need proper classification include landscaping, site fencing, parking lots, decorative fixtures, cabinets, and security equipment.