Year End Tax Planning with Fixed Assets

Year End Tax Planning with Fixed Assets

As 2015 comes ever closer to an end, it is time to consider your tax planning options for the remainder of the year.  One aspect of tax planning for a business is how to account for fixed asset purchases in the most tax efficient manner.  There are several methods to plan with fixed assets including the use of bonus depreciation, section 179 expensing and the timing of an assets’ placed in service date.  These tax planning ideas assume that no changes are made to the tax law as they exist at the time of this articles publication.

Bonus Depreciation/Section 179 Expensing

Bonus depreciation is a tax deduction that allows the acceleration of depreciation expense on fixed assets under certain circumstances.  The deduction is allowed on new assets with a class life of less than 20 years.  The deduction is also allowed for software depreciable over three years, qualified leasehold improvements and automobiles used more than fifty percent for business.  The deduction allowed through the end of 2012 is fifty percent of the cost of the eligible property.  Currently, there is no bonus depreciation available for 2015.  However, it has been voted on in Congress this year and may return retroactively before year-end (as in prior years).

Section 179 expensing is allowed on new or used qualifying property up to $25,000 for 2015.  The amount of available 179 deduction is reduced dollar for dollar to zero to the extent that the total cost of eligible fixed assets placed in service exceeds $200,000 in 2015.  However, there has been a lot of discussion in Congress about increasing these limits again for 2015 retroactively as has been done in prior years.

Placed in Service Date

An asset is placed in service generally when it begins to be used in a trade or business.  You can purchase an asset and not use it in the trade or business right away.  That distinction allows a taxpayer to use the placed in service date as a planning tool.  Depreciation deductions, bonus depreciation and section 179 expensing all require the asset to be placed in service.  The planning opportunity is to defer the start of deductions until a later placed in service date in order to push expenses into a later tax period to offset projected income.  If an entity does not need the tax deductions, but purchased the fixed assets because of better prices, anticipation of need of the assets, etc., this is an effective tool to time the deduction of the tax expenses for maximum use.

Conclusion

The timing of fixed assets purchases and placed in service dates presents an opportunity for a business to plan the best use of the related gains, losses and tax expenses.  If there is some leeway for the business in the timing of fixed asset purchases for their trade or business, a tax benefit can be achieved in timing those fixed assets deductions.  If you have any questions on these ideas or questions about fixed assets in general you should seek the advice of a qualified tax professional.