Posted On May 10, 2018
In keeping with its aim to reduce burdens and encourage businesses to make investments, the Tax Cuts and Jobs Act, effective Jan. 1, 2018, offers a variety of tax advantages that can yield big savings.
This post highlights two particularly important provisions and touches upon a few others of note.
Businesses can immediately expense more
Many businesses have long wished they could write off all, or at least more of, the purchase price of equipment rather than having to do so incrementally through depreciation over several years. The new law grants their wishes, at least for 2018.
The new rule doubles the annual amount businesses can directly expense for Section 179 capital assets, which generally include equipment, vehicles, computers and “off-the-shelf” software. Businesses can now write off the cost of any Section 179 property up to $1 million (up from $500,000 under the old law). As before, this amount will be adjusted annually to account for inflation.
This will help businesses who, for example, might be able to buy covered equipment now rather than being forced to wait.
Also, very significantly to many businesses, the definition of Section 179 property has been expanded to include improvements to the interior of nonresidential real property, including roofs, HVAC units, fire protection systems, alarm systems and security systems. This means that any business, from mom-and-pop shops to large box retailers and hotels, will be able to take a deduction for these items that are necessary to their safety and day-to-day operations.
Temporary 100% bonus depreciation
Bonus depreciations are not available every year, but this year’s is a real boon for small businesses.
For 2018, Section 168 of the Act allows businesses to immediately deduct 100 percent of the adjusted basis of new or used, tangible personal property with a depreciable life of 20 years or less that was acquired and placed in service after Sept. 27, 2017. This doubles the temporary bonus deduction amount from 2017.
The definition of eligible personal property was also expanded to include qualified film and television and live theatre productions that were initially released, broadcast, or staged live before Sept. 27, 2017.
The 100 percent exemption also fully applies to all property covered by prior law, including certain off-the-shelf computer equipment, water and utility properties, and specific plants.
Boost to the citrus industry
Another interesting new tax code provision allows for two different categories of taxpayers immediately to deduct rather than capitalize the costs of replanting edible citrus plants that were lost due to freezing temperatures, disease, drought, pests or casualty. This provision is intended to attract investment in the U.S. citrus industry as it struggles to rebound from hurricanes and the spread of citrus greening – or yellow dragon disease – which reached Florida in 2005 and thereafter spread to most of the nation’s citrus farms.
Other provisions of the rules:
Act quickly, but first get help
Businesses looking to take advantage of these benefits should not wait. Notably, Section 179 can change at any time, even mid-year.
It is very important to consult with a lawyer or a CPA about any of the new laws, which can be complex and difficult to understand, especially as they apply to one’s own specific circumstances. Those attempting to interpret the rules themselves are at risk of creating significant problems down the road with the U.S. Internal Revenue Service and the South Carolina Department of Revenue.