Question

When taking a depreciation deduction for tax purposes you may not always advise a client to take the 100% bonus depreciation expense. Why might you advise a client to opt out of bonus and are there some assets you think bonus depreciation is not a good idea?

Answer 1

Bonus depreciation allows businesses to deduct a large percentage of the cost of eligible purchases the year they acquire them, rather than depreciating them over a period of years.However  businesses like to take advantage of bonus depreciation in years where their profit is higher so the bonus depreciation will reduce the amount of taxable profit for the business. If the business is likely to make a loss bonus depreciation is not a good idea. Further bonus depreciation must apply to 100% of an asset’s cost and all assets must be in the same category. If you use bonus depreciation for one 5-year asset, you’ll need to use it for all 5-year assets bought that year.