One of the biggest changes in taxes for businesses this year has to do with how business owners can deduct equipment and furniture. Before 2014, if you had a piece of equipment that cost under about $200 and lasted less than 5 years, you could just deduct it as office expense or small equipment. If it was over about $200 and lasted 5 or more years, you needed to depreciate it over its useful life. There has also been Section 179 depreciation in which you can take the cost a piece of equipment all in one year.
Many business owners use Section 179 depreciation to be able to deduct equipment in the current year and take advantage of the deduction. But the past few years, congress has been threatening to reduce the amount of Section 179 that can be deducted in one year. So, in anticipation of that there is a new law. The new law says that you can expense a piece of equipment that costs under $500 all in one year if you do two things:
- You must have a company policy that says your company agrees to deduct equipment each year in this manner.
- There is a form you must file one time for the life of your business.
We are recommending that every business owner file the form this year with their tax return so that they are covered under the new law. It will require an additional signature, but we feel that to ensure that each business is compliant with the new law, and so that no one forgets in the future, this is a good time to take care of it. If you do expense equipment that costs under $500 without doing the above two requirements you could be subject up to a $5,000 penalty.
Another law change that has come from this same bill affects people with rental properties. In the past, the cost of many repairs and remodels had to be depreciated over 27 to 35 years. Under the new law, any repair (such as a new roof or carpet) can be deducted all in the year it is paid for as long as it is something that would be replaced at least twice over the life of the property. We are very excited about this change as it can mean larger deductions and tax savings for property owners.