Bonus Depreciation vs. Section 179:
WHAT’S THE DIFFERENCE?
This year is half over and shortages are making trucks and trailers difficult to find. When you do purchase a piece of equipment, do you take advantage of Bonus Depreciation or Section 179? When your business purchases a piece of equipment, you are supposed to spread the tax deduction over the asset’s life. But why wait? The Section 179 Deduction and Bonus Depreciation are two ways to get your entire tax break up front.
You may be asking yourself this question:
So what is the difference between Section 179 and Bonus Depreciation?
Section 179 lets business owners deduct a set dollar of new business assets, and Bonus Depreciation lets you deduct a percentage of the cost.
In the past, Bonus Depreciation only covered 50% of an asset’s cost upfront, but as of the (2020 Bonus Depreciation new rules) this is now 100%, so now both models let you deduct the entire cost in the same year. Based on the (2020 Section 179 rules), Section 179 gives you more flexibility on when you get your deduction, while Bonus Depreciation can apply to more spending per year.
How do you know which works best for your business?
Key Points for Section 179
Section 179 – Flexibility of when you use this deduction. This deduction can also be used on Real Estate upgrades. You can choose which purchase to cover under the Section 179 deduction and which to save as a future tax break You can even split the deduction for individual purchases. Bonus Depreciation does not cover this category. The annual limit on deduction: The Maximum Section 179 deduction per year is $1,050,000, after that the amount you are eligible to deduct starts to decrease.
Key Points for Bonus Depreciation
NO Annual limits on deductions, 100% deduction: This deduction isn’t limited to cost, a stark difference between Section 179 and bonus depreciation. You can deduct your entire Investment no matter how much you spend per year. Bonus Depreciation deduction can be larger than your business income! Unlike the Section 179 deduction, Bonus Depreciation must apply to 100% of an asset’s cost and all assets must be in the same category. If you use Bonus Depreciation for one 5-year asset, you will need to use it for all 5-year assets bought that year.
You can use both Bonus Depreciation and Section 179 in the same year. Consult with your Accountant to see what combo will deliver the most bang for your Business write-offs.
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