Upcoming Changes to Depreciation in 2024

The rapidly expanding tech industry is seeing many new startup companies. These new businesses are often making large asset purchases to get up and running. This year in 2024, businesses will benefit from an increase to the maximum immediate expensing option under Section 179 from $1,160,000 to $1,220,000. Items deductible under Section 179 include furniture, fixtures, machinery and equipment, computer equipment, many types of computer software, and even vehicles. For any basis not immediately deducted under section 179, bonus depreciation can help with the big-ticket purchases. Because of the Tax Cuts and Jobs Act, businesses have enjoyed additional bonus depreciation eligibility for new and used equipment placed in service between September of 2017 and January of 2023. Starting in 2023 though, bonus depreciation has been set to decrease annually by 20%. Changes through new legislation have been proposed in Congress to reinstate the provision of the favorable bonus depreciation rules but are unlikely to pass prior to the Presidential election. In the meantime, businesses should plan around the gradual annual phaseout of additional bonus depreciation and section 179 expense. Since these changes are set to occur over the next 3 years, businesses should begin looking at their long term capital expenditures - what needs to be replaced, what do they need to grow and what do they need to sustain their growth. Any of these expenditures the company can incur now will yield substantial tax savings in the current year versus waiting for future years when the eligible deductions are subject to lower immediate deductions than in the current year. The depreciation rules are subject to many limitations and phaseouts. We assist clients on navigating through these rules and strategizing the best methods to employ for maximizing tax planning. Please let us know if we can assist you.