Question

What is bonus depreciation and why is it desirable for businesses? What is one disadvantage of bonus depreciation?

Answer 1

Bonus depreciation is supposed to be a way to accelerate depreciation.It allows a business to write off more of the cost of an asset in the year the company starts using it.It is a tax saving tool for business which allows an immediate first year deduction in purchase of a property.It is a method of accelerated depreciation which helps in taking an additional deduction of 50% of cost of asset in the year it was first put to use.

It is desirable for business because it allows businesses to deduct a large portion of cost of assets in the year they have been acquired,rather than charging a depreciation over a period of years.

One disadvantage of bonus depreciation is lower future deduction.The higher upfront deduction comes at the expense of lower deduction in future.