Company I work for says there accountant says they need to buy new vehicle/equipment to reduce Taxes (using 100% depreciation)? I'm confused how this works, and if it is a longterm benefit ? Anyone know how explain the benefit to me...
Do you get to 100% depreciate the first year, and do the payments also get counted as a expenses the following years?
If not I don't see the benefit, example if company makes $100K profit in year and pay 25% tax, would owe $25k... If they buy $100k in equipment (say its financed for 4-5 years) and depreciate it 100% year one ; now profit $0 and taxes $0 for year one? But then year two thru five your paying lease payments of $20k+/year on that equipment and have no depreication on those years? (unless lease payments are a tax expense)...
What am I missing...
This discussion has been locked. No new contributions can be made. You may start a new discussion here
Well, 100K in profit (depending on the business structure) may end up costing more than 25% in taxes once federal, state and any self employment taxes get figured in.
If they are in need of a piece of equiment that they may be planning on purchasing in the near future anyhow, it may be a good time to do it before year end.
Everyones tax situation is different, whether it make sense to buy this asset is something the accountant should be able to explain based on their particular situation. Depreciation doesnt have to be taken all at once, there are several different planning opportunities that are available.
Generally you can only depreciate equipment that you own. So you can't take bonus depreciation in Year 1 and deduct lease payments, too. There is an exception for certain leases where you are treated as owning the property. There, you claim depreciation and don't deduct the lease payments. There is no double dipping.
You have clicked a link to a site outside of the Intuit Accountants Community. By clicking "Continue", you will leave the community and be taken to that site instead.