Tag Archives: Bonus Depreciation

Obama’s Bonus Depreciation Plan – Good for Business, Bad for Debt?

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reuters.com

reuters.com

From a business perspective, we all look at bonus depreciation as a good thing. However, it appears as though too much of a good thing may be bad for our national debt. In an article in The Fiscal Times, authors Brianna Ehley and Josh Boak look into President Obama’s strategy of bonus depreciation as a means to stimulate the economy.

As part of his 2009 stimulus package, the president tried to jumpstart the economy for part of 2010 and 2011 by letting companies deduct the full cost of new computers, machinery and office equipment—what accountants call “bonus depreciation.” The plan halved the size of the deduction for 2012 and 2013, even though the results appear to be lackluster.

One industry official who advocated for the write-off confided to The Fiscal Times, “It would have been worse without it, sure, but it didn’t have that much effect on decisions to invest, since the economic uncertainty still had business owners extremely worried about future sales.”

The Government Accountability Office revealed this month that companies saved $76.1 billion on their 2011 tab with the IRS.  But it’s unclear how crucial it has been to a slow recovery.

The White House forecast back in 2010 that the 100 percent depreciation would produce $50 billion in new private investment. It would come at a $150 billion price tag for two years, but the additional corporate spending and return to normal growth patterns would bring that expense down to $30 billion over a decade, the administration said in a white paper.

What complicates those initial White House estimates is that a strong recovery never materialized, and the administration continued the accelerated depreciation—albeit at 50 percent—for 2012 and 2013.  And the costs of the accelerated tax write-off may have backfired by robbing federal coffers of substantial revenue.

According to Steve Wamhoff, an analyst at the Citizens for Tax Justice the constant use of bonus depreciation—which President George W. Bush also relied on in 2002, 2003, 2004 and 2005—make it less likely that the government will ever fully recover the $120 billion in revenues first projected by the Obama administration.

Read Full Article Here

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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.

Bonus Depreciation Takes a Big Cut

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bonus depreciation cuts 2In a very informative article on the CliftonLarsonAllen website, Perry McGowan discusses the new Bonus Depreciation rules that took effect as of the 2012 tax year and what it means to your taxable income.

If your construction business is equipment intensive and you’re seeing taxable income spiking, you are not alone. The fact is, the favorable depreciation rules of the past few years — the very ones that made tax planning easier in the downturn — are now turning around with some surprisingly unfriendly results.

The biggest culprit of the turnaround is bonus depreciation. Most recently, the tax depreciation rules have allowed 50 percent to 100 percent bonus depreciation since 2008. This peaked with 100 percent bonus in 2010 and 2011. Beginning with capital assets placed in service January 1, 2012 (and extending until at least December 31, 2013), bonus depreciation has fallen back to 50 percent.

That means that a $100 investment in most new equipment in 2011 provided a $100 deduction, but the same investment in 2012 would earn $50 of bonus depreciation plus an amortization of the balance. Under modified accelerated cost recovery system (MACRS) tax depreciation, a taxpayer receives a 20 percent write-off ($10) in the first year for assets with a five-year life, or about 14 percent ($7) for assets with a seven-year life.

These sizable deductions are useful in controlling taxable income except for one detail: no one knew we would have any bonus depreciation in 2012 until the fiscal cliff legislation passed Congress in the early hours of 2013. While the extended bonus is something of a windfall, it may not be enough.

If bonus depreciation rules do expire as scheduled, there will be another income spike in 2014. If they extend the benefit yet again, they delay that day of reckoning. We don’t yet know the endgame, but we do know that bonus has taken a bite in 2012 and is likely to do so in 2013 as well.

Read Full Article Here:

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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.

Limitation on Luxury Automobile Depreciation

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The IRS just issued the 2013 depreciation limitations for automobiles and trucks. You can see the full release here. The 2013 limits for passenger automobiles are the same as 2012 while the truck limits have increased.

Limitation on Luxury 2

IRS rules limit the amount of depreciation that may be deducted annually on a passenger automobile used for business. This depreciation limit may be found in automobile depreciation limitation tables published by the IRS annually in Publication 463:

http://www.irs.gov/pub/irs-pdf/p463.pdf

Pick-up trucks, SUVs and vans built on a truck chassis with a gross vehicle weight rating of less than 6,000 pounds use a different set of limitations. In 2012 the truck limits in the first year were $3,360 and $11,260 with bonus depreciation. Second year was $5,200, third year was $3,150 and all other years were $1,875. In 2013, these limits have increased by $100 in each year. If bonus depreciation is not elected, then you must use the lower limitation in the first year and the same limits for all subsequent years.

The above limitations all assume a 100% business use of the vehicle. If the vehicle is used more than 50%, but less than 100% then the amount must be reduced proportionally based on the percentage of business use. For example, if a car was used 80% of the time for business then all limits would be multiplied by .80 to calculate the appropriate limitation.

A program like Bassets eDepreciation will automatically calculate these limitations for you and ensure accurate compliance. Additionally we will research the annual tax law changes and confirm that the most current auto limitations are properly applied.

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.

States that Do/Don’t Follow Federal Depreciation Regulations

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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

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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.