Tax Reduction Podcast
Introducing your host, Boris Musheyev, CPA. In this podcast Boris debunks the tax code by teaching you simple and effective tax strategies, so you can keep the most of what you make. His mission is to help you cut taxes and build wealth using the power of proactive tax strategies. Every episode you will gain a better understanding of how the tax code is designed to be in favor of money-making entrepreneurs like yourself.
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Tax Reduction Podcast
Episode 18. Don't Take Bonus Depreciation in 2024
In 2024, navigating the complex landscape of tax strategies is more critical than ever, especially when it comes to bonus depreciation. In my latest deep-dive podcast, 'Don't Take Bonus Depreciation in 2024,' I uncover the essential insights and alternative strategies that every business owner needs to know to optimize their tax situation.
I've put together this FREE resource for you:
7 Write-Offs Every S-Corporation Business Owner MUST Know
🆓 Download FREE PDF here: https://7taxwriteoffs.com/
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*Disclaimer This material & presentation content is for informational and educational purposes only. This material and presentation content is designed to provide general information regarding the subject matter covered. It is not intended to serve as legal, tax, or other financial advice related to individual situations. Because each individual’s legal, tax, and financial situation is different, specific advice should be tailored to the particular circumstances. For this reason, ...
Don't take bonus depreciation in 2024, and whatever your account is telling you is a lie. I will tell you the truth about bonus depreciation and the alternative that you could use in 2024. Ready, let's go.
Speaker 2:Welcome to the Tax Reduction Podcast for money-making entrepreneurs with Boris Mushaev. Boris has helped entrepreneurs across the United States collectively save millions of dollars in taxes with the power of tax planning and advisory. The only way you, the business owner, can save money on taxes is by using proactive tax strategies, and this podcast is all about saving you money on taxes. Boris will share with you in-depth and easy to understand tax reduction strategies that you can implement in your business within 30 days or less. Let's jump into today's episode.
Speaker 1:What is really a depreciation? A depreciation is basically what IRS decides what the class of asset should be. It has its useful life, right. It could have a useful life of five years or seven years, 10 years or 15 years 15 years. So, for example, equipment or automobiles could be have five or seven years, right. Real estate residential property 27 and a half years. Residential property 39 years.
Speaker 1:Basically, irs says take the cost of that and divide it by the number of years, that is your deduction every year, which seems pretty cool. Okay now, but not so cool. The reason I say not so cool is that you just spent a hundred thousand dollars buying an equipment and you only get a twenty thousand dollar deduction and then we have, you know, amortization. Amortization is for things like software or goodwill. When you buy in a business that may have like a 15-year amortization life, something that doesn't have a tangible right, right, it's not a tangible asset. I really want to focus on bonus depreciation and section 179. Now, as you know, bonus depreciation when President Trump took office, he basically said all the assets that you buy, instead of dividing the number of years five, seven years or 27 and a half years, 15 years, whatever that may be. You can take everything as a deduction your first year and that is called bonus depreciation. Before September 27, 2017, the bonus depreciation was at 50%. So you bought $100,000 equipment. You get a $50,000 write-off. The difference you write off over the course of, let's say, five years. Okay, now with the bonus depreciation.
Speaker 1:After President Trump took office and passed tax cuts and jobs act, he said Nope, all the equipment that you buy is going to be a hundred percent deductible in this first year. Everybody was like Whoa, this could apply to your equipment, this could apply to your rental, real estate investment, this could apply to your auto. Like it was a huge, huge deal for a lot of business owners. Okay now, but it came with a cost, meaning to say or I should say, expiration date, not a cost in 2020, it basically expired in 2022. By end of 2022, in 2023, you could take 80 depreciation deduction, in 2024, 60 depreciation deduction.
Speaker 1:There is actually a bill that was passed and approved by the House, but not yet Senate, to bring back the bonus depreciation to 100%. We still don't know if the bill is going to pass the Senate and we might end up with a 60% depreciation. And a lot of business owners are crying and they're hurt and like, wow, irs doesn't like us, but everybody seems to forget, including their accountant, that we have something that is called a Section 179. And how you can use a Section 179 compared to bonus depreciation something that your accountant is probably not telling you because you don't have a tax advisor. We're going to talk about Section 179 and how to use it as a tax strategy right after this break.
Speaker 2:If you have a tax preparer and you do not have a tax advisor, the only way you can save money on taxes is by using proactive tax planning strategies that only a tax advisor can give you. Boris put together a free PDF for you, the business owner Seven tax write-offs every S-corporation business owner must know. In this PDF, you can find seven tax strategies that you can start using in your business to instantly start saving money on taxes. Click on the link in the description below for a free download.
Speaker 1:Let's talk about Section 179. Now, before the whole bonus depreciation became 100%, business owners could also take advantage of something that is called Section 179. So that means that you could still deduct 100% of the assets that you purchased Maybe not all assets, such as, for example, autos that are more than £6,000. They had limits or real estate rental properties, but the Section 179 was still a pretty good write-off, especially if you buy a lot of machinery and equipment in your business. Now the limit for 2024 to write-off, or section 179, is 1.5%. Point two two zero right. One million two hundred and twenty thousand dollars. That means the phase out doesn't begin at three point, at three million fifty thousand dollars. Meaning, say, if you buy equipment at three million fifty thousand dollars all these numbers in my head then there's a phase out is going to begin. But if you're a small business owner and you're under that threshold, up to 1.22 million dollars, bam can be deducted, 100 in the first year compared to bonus depreciation. If the bill doesn't pass the senate, then we're back at 60 bonus depreciation for 2024. Okay, well, not, we're back, we're actually at it right now. So 2024. So what we want to do right now is actually properly plan for this year whether we should take section 179 or bonus. If your taxes for 2023 are not yet filed, you can actually do after-the-fact planning, and I'll talk about it here for 2023, because in 2023, bonus depreciation was only 80%.
Speaker 1:Now I love Section 179. Why? Because it actually is pretty flexible. As long as you have profits in your business, you can take Section 179. If you have $0 profit, so you have losses and you bought equipment, any Section 179 depreciation generated by that equipment that does not contribute to the loss, for example, is just carried forward. That's where bonus depreciation could come in handy. But in Section 179, you also can pick and choose assets the class of asset With bonus depreciation you can. If you bought one equipment and you choose bonus depreciation, then all equipment should be bonus depreciation. With Section 179, you can pick and choose which equipment you want to do 100% of deduction. You don't want to do 100% of deduction. Very, very flexible.
Speaker 1:You also can do a partial depreciation. Let's say you bought a five hundred thousand dollar equipment and you only want to take three hundred thousand dollars in its first year. So, matter of fact, we did that with the clients airplane. Okay, the client called us. He's our tax advisory client wants to buy an airplane airplane legitimate use for the business and we actually set there and calculated what will it look like if we take a partial Section 179 compared to how much we can carry over to next year? Did a lot of planning, came out to great great benefit and tax savings. Okay, so Section 179, so whatever, you're being told by your accountant oh, bonus depreciation is done, gone. You can't take advantage of it. You actually can if you properly plan with your tax advisor.
Speaker 1:Now bonus depreciation. Coming back to bonus, it was really really awesome to take a hundred percent. Why? Because you could actually write over a hundred percent of a business vehicle that weighted more than six thousand pounds. You could also use bonus depreciation when purchasing real estate, investment property, such as rental real estate. Doing cost segregation studies, 100% bonus depreciation was a winner. But now that the tax law is changing and the House passed the bill to bring back bonus depreciation to 100%, the Senate hasn't approved it yet, so we still don't know what we're doing. Now let's talk about boards. How can we plan for this? How can we use this tax strategy with a section 179 or even bonus depreciation, and what should we be doing? We'll do this right after this break.
Speaker 2:If all your accountant does is taxes, you may be overpaying in taxes by thousands of dollars every year. Every week, Boris releases a tax strategy on his podcast so that you, the business owner, can pay less in taxes every single year. Be sure to subscribe to our podcast to be notified when a new tax strategy is released. If you're ready to work with a tax advisor on your tax strategy and planning, be sure to schedule your call by heading over to wwwtaxplanningcallcom. Again, that's wwwtaxplanningcallcom.
Speaker 1:Let's talk about how to implement these strategies. Number one what's really cool about depreciation planning? You're going to buy equipment whether you need it. I mean, excuse me, you're going to buy equipment because you're going to need it in your business, right? You're not going to buy it because you don't need it, so you're going to need it. And what I like about depreciation planning is that you can actually also do not before the year is over, at the time of purchase, but you can a chance to do any planning. Oh, now you finally got yourself a tax advisor instead of working with a tax preparer, you can actually do year-end planning. So, hey, if I take a bonus depreciation or if I take a section 179, how can I do it? Can I choose which classes of assets? I don't want to depreciate everything this year, but I only need, let's say, half a million dollars in deduction. You can actually plan that at the year end.
Speaker 1:What's really important also state planning. If you do decide to go with bonus depreciation, what we had seen a lot when people were taking, or business owners were taking, 100% depreciation. Not all states complied, especially New York State or California. If you took, let's say, bought equipment for $100,000 and you got a $100,000 write-off. When the tax return is being prepared, the software that your preparer or your tax team is using is adding back the $100,000 in income on the state return and then takes that $100,000 and divides it by five let's say it's a five-year depreciation. Then states don't comply. But states comply with Section 179. So it's a huge, huge planning opportunity.
Speaker 1:If we look wait a second I could either use bonus with section 179. So it's a huge, huge planning opportunity. If we look wait a second I could either use bonus or section 179. Where do I benefit the most? Definitely do some state planning, profit planning.
Speaker 1:If business has no profits and you bought a lot of equipment and you need to generate loss, number one make sure you have enough basis in your business. So if you bought, if you have a loss and you got equipment especially if you finance it and you want to use that equipment as a loss, which you may okay, you want to make sure that you use bonus depreciation instead of section 179. So profit planning is super, super important. Like I said, all of these three things that I talked about right now, this can be after the fact planning as well, at the year end, before your taxes are filed. If you need to file for an extension, go for it. Uh, if you think extension is a is a, what is it called in an audit trigger? That is not true, actually, okay, extension is giving you enough time to get your documents together and file it with the irs. Now, if you have taxes due with an extension, you want to make sure you pay that. Other than that, this can be done at year end Until the next time.
Speaker 2:That's it for today's episode. Be sure to check out the description below for some free tax reduction resources that Boris put together for you. If you're ready to work with a tax advisor on your tax planning, be sure to schedule your call by heading over to wwwtaxplanningcallcom. That's wwwtaxplanningcallcom. And be sure to subscribe to our podcast to be notified when the next strategy is released.