Reap tax benefits by upgrading your laundry before the end of the year
Upgrading your laundromat isn’t just a good business decision. It’s also a timely one, due to current tax benefits.
Bonus depreciation, an accounting method that encourage businesses to invest in new equipment, gives businesses a tax break on the purchase price of that equipment, allowing owners to immediately write off a percentage of the cost, rather than writing them off over their “useful life.”
Though the rules can change yearly, bonus depreciation is currently available for both new and used equipment, Investopedia reports. However, the amount you can write off depends on the type of asset.
Tax Cuts and Jobs Act
Enacted in 2018, the Tax Cuts and Jobs Act increased first-year bonus depreciation to 100 percent through the end of 2022. However, the deduction will phase out, dropping to 80 percent in 2023, 60 percent in 2024, 40 percent in 2025 and 20 percent in 2026. After 2026, the deduction will no longer be available since bonus depreciation was enacted only as a short-term incentive for small businesses to spur investment that they otherwise might delay.
The tax savings from the deduction will depend on the taxpayer’s income tax bracket and individual financial circumstances, according to Shared Economy Tax, a tax firm specializing in 1099 independent contractors. However, the savings can be significant.
Bonus depreciation qualifications
To take advantage of bonus depreciation, businesses must meet certain requirements:
- The asset must be placed in service by the business. If you order new equipment this year, but the equipment is not in service until next year, you would not be eligible for bonus depreciation until 2023.
- The asset must be new to the taxpayer, but the asset doesn’t have to be new. For instance, if you purchase used furniture for your laundromat, the asset would be new to you and still qualify for bonus depreciation.