Should I buy more equipment under the new tax law before the year ends?
The short answer is, as always, it depends. But here are some basics about the new tax law.
First, businesses can immediately expense more under the new law, which increases the maximum deduction from $500,000 to $1 million on Section 179 property (section179.org). It also increased the phase-out threshold from $2 million to $2.5 million. So any tangible property used for business purposes (restaurant furniture, fixtures and equipment, for example) placed in service by December 31, 2018 will qualify for these increased thresholds.
Second, qualified improvement property can be included as Section 179 property. Qualified improvement is any improvement to a building’s interior. However, certain improvements that alter the internal structure of the building don’t count. Also, the changes to the property must have occurred after December 31, 2017. This is good news if you have some interior improvements to make.
However, qualified improvement property is no longer eligible for bonus depreciation. In other words “Do not pass go” if we were playing the game of Monopoly. The IRS is being challenged as we speak to retroactively change this law back to the existing law, which was more favorable. Get advice for any remodel expenditures anticipated prior to the end of 2018.
Finally, the new law increases the bonus depreciation percentage from 50% to 100% for qualified property acquired and placed in service between September 27, 2017 and January 1, 2023. Qualified property that was acquired before September 28, 2017, and placed in service before January 1, 2018, remains at 50%. Also, the criteria for property to qualify for 100% bonus depreciation was expanded.
Remember that the IRS can always collapse all types of transactions into one. And the intent to avoid versus minimize taxation makes a big difference.
Your takeaway from this article is to pick up the phone and call your CPA or accountant and have the following words explained and how they impact your restaurant by December 31, 2018: new law, Section 179 property, qualified improvement property, and bonus depreciation. Ensure these four phrases are addressed prior to the end of the tax year.
You can visit us at rasmussentaxgroup.com for additional insight into restaurant specific tax strategies, accounting and technology programs. To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and it cannot be used for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. You should seek advice based on your particular circumstances from an independent advisor.