At Sequoia Investments, we understand the importance of strategic tax planning to enhance cash flow and drive growth. The IRS provides powerful tools for tax mitigation, particularly through Bonus Depreciation and Section 179, which allow businesses to deduct the cost of significant asset purchases upfront. By leveraging these provisions, you can minimize tax liability, preserve capital, and accelerate your path to profitability.

Bonus Depreciation

Bonus depreciation, outlined in Section 168(k) of the Internal Revenue Code, enables businesses to immediately deduct a large portion of the cost of eligible assets. This incentive is designed to encourage capital investment, providing immediate tax relief that supports business growth.

Key Benefits of Bonus Depreciation

1. Accelerated Tax Savings
   Deduct a significant portion of asset costs upfront rather than over several years, reducing taxable income and providing immediate cash flow benefits.
2. Improved Liquidity
   The reduction in tax liability in the first year enhances cash flow, allowing you to reinvest in operations, expansions, or debt reduction.
3. Stimulated Investment
   Encourages timely investments in machinery, equipment, and qualified improvement properties, fostering productivity and long-term economic growth.

Eligible Assets

• Tangible personal property with a recovery period of 20 years or less (e.g., machinery, vehicles, furniture).
• Certain qualified improvement properties, including facility upgrades.

Considerations

• Qualified Property Requirements: Not all assets qualify; ensure eligibility before claiming.
• Future Deductions: Accelerated depreciation may reduce deductions in later years, impacting long-term tax planning.

Section 179 Depreciation

Section 179 allows businesses to deduct the full cost of eligible assets—new or used—purchased or financed during the tax year. This flexibility makes it a versatile option for small and medium-sized businesses looking to maximize tax savings while investing in essential assets.

Key Benefits of Section 179

1. Immediate Tax Relief
   Deduct the full purchase price of qualifying equipment and software, reducing taxable income in the current year.
2. Flexibility
   Align deductions with cash flow and business priorities, enabling better planning and financial management.
3. Competitive Edge
   Allows businesses to acquire critical tools and technology while minimizing the financial burden, enhancing efficiency and innovation.

Eligible Assets

• Machinery, equipment, vehicles, computers, and software.
• Certain property improvements, including HVAC systems, roofing, and security systems.

Considerations

• Annual Limits: The maximum deduction for 2023 is $1,050,000, with a phase-out beginning at $2,620,000 in total purchases.
• Usage Requirements: Assets must be used more than 50% for business purposes.

Coordinating Bonus Depreciation and Section 179

Businesses can combine these deductions strategically to optimize tax benefits:

• Use Section 179 for immediate savings on essential assets within annual limits.
• Apply Bonus Depreciation to additional qualifying purchases exceeding Section 179 limits.

Tax Planning Tips:

• Evaluate total fixed asset expenditures to determine allowable deductions.
• Consider current and anticipated tax brackets to decide between accelerated and straight-line depreciation.
• Ensure compliance with state-specific rules, as some states deviate from federal guidelines.

Take Control of Your Tax Strategy Today
Contact Sequoia Investments to explore how Bonus Depreciation and Section 179 can work for you.