Big Tax Payoff for Bonus Depreciation:
Enhanced tax breaks for business owners
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As your business is starting to emerge from this year’s disruptions, you may be inclined to acquire new equipment or other assets to help generate more income.
In addition to the Section 179 allowance, which allows your business to expense up to $1.04 million of the cost of assets placed in service in 2020 (subject to certain limitations), your operation may benefit from “bonus depreciation.”
The
Tax Cuts and Jobs Act (TCJA) recently enhanced this tax break. However, the benefits are being gradually phased out in the near future.
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Background
Prior to the TCJA, a business could claim a first-year bonus depreciation deduction equal to 50% of the cost of new qualified property placed in service. The
deduction was added onto the amount expensed under Section 179.
Bonus depreciation was available for assets like computers, vehicles, off-the-shelf software, machinery and equipment, office furniture and other depreciable property. The cost recovery period is 20 years or less under the Modified Accelerated Cost Recovery System (MACRS).
However, “used” property did not qualify for the deduction. Furthermore, a business was able to claim 50% bonus depreciation for “qualified improvement property” (QIP) of a building. The definition of QIP excludes costs for the enlargement of a building, elevators and escalators and a building’s internal structural framework.
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Tax update
The TCJA doubled first-year bonus depreciation to 100% for qualified
property placed in service after September 27, 2017 and before January 1, 2023. This
deduction is scheduled to be phased out as follows:
• 80% in 2023
• 60% in 2024
• 40% in 2025
• 20% in 2026
After 2026, no bonus depreciation is allowed absent further action by Congress. Significantly, the TCJA also expanded the definition of qualified property eligible for bonus depreciation to include used property. Previously, only new property qualified.
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Finally, note that a change in the new Coronavirus Aid, Relief and Economic Security (CARES) Act fixes a glitch in the TCJA. The CARES Act establishes that QIP has a cost recovery period of 15 years so it now qualifies for bonus depreciation. This change, which has been called for since the enactment of the TCJA and is retroactive to 2018, reflects the original intent of Congress to allow bonus depreciation for QIP.
Caveat: Despite the benefits, the decision to elect first-year bonus depreciation requires a thorough analysis. For instance, if your business is organized as a pass-through entity such as an S corporation, partnership or limited liability company (LLC), the bonus depreciation deduction reduces qualified business income (QBI). In turn, this lowers the QBI deduction. Therefore, if you are entitled to a QBI deduction, consider the potential tax impact of bonus depreciation.
Also, it may be advantageous for a business to “elect out” of bonus depreciation in a year when it has expiring net operating loss (NOL) carryovers or expiring credit carryovers
that it cannot use if taxable income is reduced by the bonus depreciation deduction.
Before you commit to acquiring expensive equipment for your business, please talk to us. We can walk through the tax implications with you to provide you with the information you'll need to make the decision that's right for you.
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Hold on There, PPP Borrowers:
No Need to Rush on Loan Forgiveness Applications
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As if business owners don't have enough to think about during this pandemic, some of those who received
Paycheck Protection Program (PPP) loans are getting nervous. When and how to pay the loans back is weighing heavily on many people's minds.
According to
this blogpost by the
American Institute of Certified Professional Accountants (AICPA), you can relax. In "
5 reasons borrowers shouldn't rush their PPP forgiveness applications," the author
Lisa Simpson, CPA, CGMA, and Director of Firm Services at the
Association of International Certified Professional Accountants, shares about factors affecting the loan forgiveness application process:
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- Most lenders are not ready to process forgiveness applications. The U.S. Small Business Administration (SBA) and the U.S. Treasury Department have yet to issue final guidance.
- Organizations have 24 weeks to use their PPP money. Those who received their loans before June 5, 2020, can choose either eight weeks or 24 weeks for their covered period, increasing flexibility in the time to use the funds.
- Payroll costs are a significant component of PPP forgiveness. Payroll providers, like lenders, are waiting on final guidance from the SBA and the Treasury.
- Borrowers are not required to make loan payments before they apply for forgiveness or until 10 months after their covered loan period ends.
- Applying for forgiveness may be easier than you might expect with simplified processes for those who meet the requirements.
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For more details on the five factors, please
click here. In the meantime, be prepared, be patient and, as the AICPA advises, "Count on your CPA to continue to be your trusted advisor throughout the process."
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Watch Backyard Financial Updates with John Vires
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With all we have to think about during a pandemic, including our health and our families, our investment portfolios also might be at the top of our list. How is the market doing and what guidance do people need during this turbulent time? We asked
John Vires, CFA®, CFP®, to share some of his calming wisdom, interviewing him in his backyard on a summer day among the sounds of cicadas and lawn mowers. Here's what he had to share:
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Partner
Brett Mathieson, CPA, contributed recently to the
Daily Herald Business Ledger. In their June 2020 issue, the
Business Ledger tackled "Back to Work" as their theme and Brett's article, "
Professional Services Adjust to a PPP, PPE world," shares about the impact of the COVID-19 pandemic on professional services firms like Mathieson, Moyski, Austin & Co.
While some MMA team members are "back to work" in the office, we are not yet open for clients. Team members are observing social distancing and mask guidelines and observing the 50% capacity recommendation for staffing. Brett's article called out the Back-to-Work team at MMA:
Jennifer Grealish, our Firm Administrator;
Cindy Gunderson, Office Manager; and
Laura O'Malley, Ambassador of First Impressions. We thank them for their hard work throughout this transition to a hybrid of an in-office and remote workforce.
Congratulations to Brett as well on his appointment to the board of the
Student Excellence Foundation, where he will serve as treasurer. The Student Excellence Foundation engages the community to enrich educational experiences that empower students to reach their greatest potential for students within
Community Unit School District 200.
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Our People Make a Difference
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Our own
Shannon Bachara, CPA, serves as treasurer of the Chamber. She issued a call to arms and our people responded. They gathered July 21 to load a 50-foot semi trailer with soft goods for the Carol Stream Chamber of Commerce Foundation Savers FunDrive.
Together with other volunteers, our MMA team loaded between 35,000 and 40,000 pounds of clothing for the FunDrive.
"We are so appreciative that our team has a heart for community service," said Shannon. "That's a long-time tradition at the firm and we have a new generation stepping up to help."
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Masked and working hard on a hot summer day are, L to R:
Liseth Pozo, Iqra Majid, Shannon Bachara, CPA, Laura O'Malley, Jake Rexilius, Jackie
Scroggs and
Jennifer Grealish.
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New faces to welcome and fond good-byes
A warm welcome to
Karen Oetchins (pronounced "Etchins"), our newest addition to the MMA team. Karen joins the Client Accounting Services department with 20 years of accounting experience, most recently in industry working for Perma-Seal. She brings a host of skills to her role and will be doing payroll, bank reconciliations and other financial support services for our clients.
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"I'm very excited to be here," Karen said as she posed for a Zoom photo from her office at MMA, adding that their work is picking up now that the firm is through tax season. Karen and her husband Tim live in Wheaton with their 10-year-old daughter Caitlyn. Karen likes to sew and her newest projects are masks for her family.
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Saying good-bye is hard to do, but we're only saying "See you soon" to our intern
Liseth Pozo. Liseth is returning to Northern Illinois University to complete her accounting degree. We look forward to seeing her when she comes back as a staff accountant following graduation.
"Thank you all for a great intern experience and see you soon!" wrote Liseth to the staff as she said good-bye. We'll miss her for sure, and it isn't only because she left us with sugar cookies, safely and individually wrapped, before she left.
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Three of our resident Lions,
Ron Austin, CPA,
Brian Hagene, CPA, and
John Vires, CFA®, CFP®, remind us that the annual golf outing for the
Lions Club of Wheaton is scheduled at Cantigny Golf Club on Wednesday, August 19.
Click here for more information about this important fund-raiser for the club. You'll even see co-founder and retired partner
Mike Moyski's gift of a Cooper's Hawk gift certificate on the auction items.
The mission of the Lions Club is to serve the needs of others and to be recognized as a philanthropic organization dedicated to serving our community by identifying humanitarian needs, supporting charitable endeavors and promoting kindness through mutual understanding and respect. We would say our partners and staff get behind that mission 100%.
Happy Golfing!
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Golf is in the air... and so is summer. Our staff is taking much-needed breaks after an historically long tax season. However, we are here for you when you need us. Please don't hesitate to contact us if you have questions about changed deadlines, new legislation or how you might take advantage of those tax breaks mentioned here. We are here to serve!
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Ron Austin, CPA
Brian Eisenmenger, CPA
Brian Hagene, CPA
Brett Mathieson, CPA
John Straus, CPA
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Please connect with us on Twitter (@MMA_CPAs)
and "Follow" us on LinkedIn !
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