It is hard to believe that 2019 is already coming to an end, but as a business owner, it is necessary to conduct a review of the books in order to project taxable income in anticipation for the upcoming filing season. Don’t fret yet as there is still time to utilize tax strategies to help minimize tax liability. As a business owner, one of the simplest ways to reduce tax liability is to acquire qualified new and/or used fixed assets. A fixed asset is an asset that benefits the business for greater than one year, such as equipment, furniture and fixtures, and building improvements. Fixed asset costs generally cannot be deducted as ordinary business expenses, rather they must be capitalized and depreciated over the life of the asset.
Recently tax reform has provided business owners with the ability to take 100% bonus depreciation on eligible fixed assets that are acquired and placed in service by December 31, 2019. So, instead of recouping the cost of that expensive fixed asset over numerous years business owners are now eligible to deduct the entire cost of the 2019 fixed asset additions. Simply put, if a business owner was considering making equipment, furniture, computers or other fixed asset purchases it may be wise to do so prior to December 31st as long as they are able to place that asset in service prior to the year-end. However, if the fixed asset addition is a luxury automobile be certain to follow the IRS rules as limitations apply. Additionally, business owners should evaluate their current inventory of fixed assets in the event that certain assets require replacement as they can be replaced now to maximize tax savings in the current year.
Owners of rental real estate are also able to take advantage of the tax savings discussed above. Perhaps the property requires improvements such as new appliances, furniture, fixtures, window treatments and even landscaping. All of these and more all meet the criteria of fixed assets that may be eligible for 100% bonus depreciation. As stated above it is important to remember that these types of fixed assets must be acquired and placed in service by December 31st of this year to obtain the 100% bonus depreciation. Improvements such as new flooring, new heating/cooling systems, and window replacement may help reduce tax liability, however, these types of improvements, unfortunately, do not qualify for 100% bonus depreciation. It is recommended to consult your tax advisor prior to making these types of improvements.