2018 brings many tax changes for Small Businesses in Oklahoma and Texas.  Although not a radical change, you now have even more flexibility on how to expense capital purchases (depreciation) in your small business.

Bonus Depreciation

Beginning in 2018, small businesses can write off 100% of eligible assets acquired whether it is new OR used.  Previously this deduction was only allowed for the purchase of new equipment.  Qualified leasehold purchases, however, no longer qualify, but will now be eligible for Section 179 deduction (see below).  This write off will begin to be phased out beginning in 2023, so plan your future purchases carefully.

If a taxpayer wants to elect a different treatment than this, they must elect to do so.  In other words, you have to write off 100% of eligible assets unless you positively choose to not do so.  Why would you want to do that?  Lots of reasons!  Suppose this year wasn’t a spectacular year and you expect more income next  year.  You many want to use some of the depreciation next year rather than the current year.

Section 179

Congress raised the limit for this popular deduction to $1,000,000 in 2018, although they left the limit on SUV’s at $25,000 (boo!)  The limit is indexed for inflation so the amount will increase in future years.  If you purchase more than $2,500,000 in assets in a year, the limit is phased out.

Qualified Improvement Property (leasehold improvements to real estate) now qualify, as do Qualified Real Property.  Qualified Real Property now permits roofs, heating ventilation and air-conditioning property, and fire suppression do qualify.  Additionally, beds, furniture, refrigerators, ranges, and other appliances (Otherwise Qualifying Residential Property) now qualify.

Lastly, restrictions on qualifications for Qualified Improvement Property have been relaxed to include related party rentals and new real estate property were removed.  The deduction is now available to either the landlord or the lessee.

Autos

Annual depreciation limits on luxury vehicles has been increased to the following:

  • Year 1  $10,000
  • Year 2  $16,000
  • Year 3  $9,600
  • Years 4+  $5,760

As you can see there are many things to consider in your tax planning.  Give us a call to discuss your situation!

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