Category Archives: Bonus Depreciation

States that Do/Don’t Follow Federal Depreciation Regulations

Posted on by

States that Do and Don'tThis is the fourth in a series of posts that examine how to calculate depreciation at the state level while accounting for differences with the federal section 179 deduction and bonus depreciation rules. Beginning in 2002 there have been several enhancements http://www.depreciationguru.com/category/bonus-depreciation/) to the tax code that allows increased Section 179 deductions and bonus depreciation on your company’s federal tax filing.

Many states calculate depreciation based on their own unique rules while others follow the federal regulations. Some states follow all the federal regulations and some follow most of the rules but disallow bonus depreciation. This can change from year to year so it is important to check the latest regulations.

Here is a link to the web site AccountingMajors.com that provides links to the department of revenue web site for all 50 states:

http://www.accountingmajors.com/accountingmajors/tax/

Although a small number of states made the decision to follow federal regulations with the bonus depreciation provision, the majority have chosen not to implement bonus depreciation.  If a state chooses to completely follow federal regulations then it is much easier for corporations to file tax returns because of the consistency in dealing with depreciation.

So why would a state make the decision to not follow the new legislature? The main reason is that they are concerned with the loss in tax revenue. That means states that choose to “decouple” from the federal law will retain the rules from prior law and require bonus depreciation to be added back on their return. While this is a solution to address the loss in state tax revenue, it creates a complexity for taxpayers that now have to deal two sets of rules. This can be difficult for both the state and the taxpayer in the current year as well as creating audit issues in future years.

If you do business in multiple states then you already know how complex this can get to keep up with the regulations in each state. To save time and produce an accurate return it is definitely worth looking at an automated solution like Bassets eDepreciation.

Questions or comments about this post? We invite you to respond in the space below.

More information about Bassets eDepreciation software can be found at Bassets.net. While there you can set up a demonstration, download a free evaluation copy and get a personalized pricing estimate.

Automate Processing of Depreciation Reports for Each State

Posted on by

This is the third in a series of posts that examine how to calculate depreciation at the state level while accounting for differences with the federal section 179 deduction and bonus depreciation rules. While a small number of states follow the federal depreciation code, the majority require adjustments for section 179 and bonus depreciation to state’s taxable income. Beginning in 2002 there have been several enhancements http://www.depreciationguru.com/category/bonus-depreciation/) to the tax code that allows increased Section 179 deductions and bonus depreciation on your company’s federal tax filing.

In the last post, we looked at some of the problems associated with manually generating depreciation numbers for each state. Many of these problems can be directly addressed by automating the calculation and reporting process. An intelligent report selection form like the one shown will prompt for the necessary variables and then generate the correct results.

Automate Processing

Let’s look at some of the benefits in automating this process:

  • Simple selection of the state to process from a drop down menu
  • Ensure proper rules are applied based on the reporting corporate entity
  • Calculate prior years based on old rules if necessary
  • Generate state depreciation numbers based on the specific rules for the selected state
  • Each individual asset is calculated based on federal variables for cost, asset class and other variables as needed
  • Detailed spreadsheet output with both the federal depreciation and corresponding state depreciation calculation for each individual asset
  • Additional forms can be printed to meet requirements of certain states
  • Save many hours of manual processing
  • Reduce research time spent reading through tax code for each individual state

As you can see, there are many benefits to automating this process. A robust fixed asset solution like Bassets eDepreciation can not only save you many hours of work, but can also ensure better results. By applying state rules on an asset by asset basis, we can generate the required summary information while also giving you a detailed audit file of the individual asset detail.

We will continue to analyze the topic of state depreciation reporting in this series of posts. Check back for our next post where we will look at the types of companies with a presence in multiple states.

Questions or comments about this post? We invite you to respond in the space below.

More information about Bassets eDepreciation software can be found at Bassets.net. While there you can set up a demonstration, download a free evaluation copy and get a personalized pricing estimate.

Manually Generate Depreciation Reports for Each State

Posted on by

This is the second in a series of posts that will examine how to calculate depreciation at the state level while accounting for differences with the federal section 179 deduction and bonus depreciation rules. While a small number of states follow the federal depreciation code, the majority require adjustments for section 179 and bonus depreciation to state’s taxable income. Beginning in 2002 there have been several enhancements http://www.depreciationguru.com/category/bonus-depreciation/) to the tax code that allows increased Section 179 deductions and bonus depreciation on your company’s federal tax filing.

Without an automated solution, many companies have to manually generate the depreciation reports for each state. This typically involves exporting data to Excel spreadsheets and then manipulating the numbers to generate the basic calculations required for a specific state. These basic calculations are usually just a simplified formula, like federal without bonus, that does not adjust for state specific rules or individual asset properties. While thees results can be submitted, they may be less than optimal and the company could be losing valuable deductions.

Adjusting the depreciation amounts in Excel can also be a very time consuming process with a significant potential for error. It is easy to make a formula mistake when dealing with a large number of rows for all of the assets in a selected state. This information needs to be filed with the state income tax returns and you should be confident in the accuracy of your calculations.

We will continue to analyze the topic of state depreciation reporting in this series of posts. Check back for our next post where we will look at how this process can be automated.

Questions or comments about this post? We invite you to respond in the space below.

More information about Bassets eDepreciation software can be found at Bassets.net. While there you can set up a demonstration, download a free evaluation copy and get a personalized pricing estimate.

State Differences with Federal Bonus Depreciation

Posted on by

This is the first in a series of posts that will examine how to calculate depreciation at the state level while accounting for differences with the federal bonus depreciation rules. Many states follow federal depreciation code, but the rules for bonus depreciation require adjustments to taxable income. Beginning in 2002 there have been several enhancements (http://www.depreciationguru.com/category/bonus-depreciation/) to the tax code that allow bonus depreciation on your company’s federal tax filing.

If a state uses federal tax income as its starting point, then the state tax revenue will suffer when the federal government provides additional tax benefits. Since states do not automatically conform to federal code this opens an opportunity for states to delay the adoption of new code and not lose tax revenue. This can be a huge problem for corporations that operate in multiple states as they have to interpret the federal code and then evaluate each state for exceptions.

Forty six states and the District of Columbia require an annual business income tax filing and can be broken down into the following categories:

  • follow federal depreciation regulations
  • follow federal depreciation regulations, but disallow the current federal bonus depreciation regulations
  • states require depreciation to be calculated based upon their own unique depreciation regulations

Generally speaking, these state taxing authorities start with the federal tax form 1120’s Net Taxable Income.  For the majority of the states that either do not allow federal bonus depreciation or have their own unique depreciation regulations, adjustments for the disallowed federal depreciation are added back to the federal Net Taxable Income amount to arrive at an “adjusted” federal Net Taxable Income amount. This becomes a very time consuming process when you need to evaluate the rules for each individual state.

We will continue to analyze the topic of state depreciation reporting in this series of posts. Check back for information on current compliance, how to automate this process, links to useful sites and more detailed information for each state.

Questions or comments about this post? We invite you to respond in the space below.

More information about Bassets eDepreciation software can be found at Bassets.net. While there you can set up a demonstration, download a free evaluation copy and get a personalized pricing estimate.

Qualified Reuse and Recycling Property

Posted on by

Qualified Reuse and Recycling Property will be the discussion point for this post on bonus depreciation.  In just over a week, the 2010 New Year will be here and it will be time for us all to make our new years resolutions.  For many people, that may be exercising more, making the world a better place, spending more time at home, and saving money.  Interestingly, many businesses will also have some similar New Years resolutions including being more profitable, being more environmentally conservative, and reducing expenses.  With that in mind, why not take a look at something that can help your business with all three of those resolutions?

source: cityofsouthfield.com

source: cityofsouthfield.com

Businesses are allowed to take a special allowance on depreciation for qualified reuse and recycling property.  If you are asking yourself what this means, you are in the right place and will find the information below.  Also below, you will find the guidelines for taking advantage of that special bonus depreciation.

Qualified Reuse and Recycling Property:

1.      Is allowed a 50% Bonus Depreciation that may be claimed on the adjusted basis of Qualified Reuse and Recycling Property acquired and placed in service after 8/31/08.  The original use of the property must begin with the taxpayer after 8/31/08 and the property must be new.

2.      Is Defined as:

  • A) Machinery and equipment (not building, real estate, rolling stock or equipment to transport reuse and recyclable materials) that is used exclusively to collect, distribute or recycle qualified reuse and recyclable materials.  Machinery and equipment includes the software necessary to operate the equipment.
  • B)  Qualified reuse and recyclable materials are: scrap plastic, glass, textiles, rubber, packaging, metal, fiber and electronic scrap.
  • C)  The term “recycle” and “recycling” means the process by which worn or superfluous materials are processed into materials for use in manufacturing consumer and commercial products, including packaging.
  • D)  “Electronic scrap” which includes cathode ray tubes, flat panel screens or similar video display devices with screen sizes greater than 4 inches diagonally and central processing units.

3.      Must have original use with taxpayer beginning after 8/31/31.  Property must be acquired after 8/31/08.  If a written contract to purchase, it must be entered into after 8/31/08

4.      Purchased is as defined in Code Sec. 179(d)(2).

5.      Qualified reuse and recycling property must have a useful life of at least 5 years.  This is not the assigned recovery period for this asset.

As you can see, committing to conducting business in a more environmentally safe manner, and finding ways to also save money through the allowable bonus depreciation can be a great new years resolution.  Should you have any questions on this, please do not hesitate to ask us below or on the questions page.  We wish you and your business the best in the upcoming New Year, and hope this information can be of help.

More information about Bassets eDepreciation software can be found at Bassets.net. While there you can set up a demonstration, download a free evaluation copy and get a personalized pricing estimate.