CALL US
(980) 237-1714
Email us
justin@pruscpa.com
Friday 09:00 - 15:00
Mon - Thu 09:00-17:00
Depreciation options
Estimated Reading Time: 3 minutes 25 seconds
Dear GP CPA Client: We are wrapping up the Company’s tax returns and would like to make you aware of an option that the Company is eligible to make based on the new tax laws passed in 2017.
This option relates to depreciation, which for many business owners, is a big reduction in their tax bill. In your/the Company’s case, the leasehold improvements and equipment purchases are nearly 100% deductible, which creates a potential $500,000 loss for 2018 income taxes. This is an extraordinary amount and definitely would stand out in comparison to the last several years of tax returns that have been filed. If you were not otherwise in a higher income tax bracket and the loss was not so large, this would not even be an issue.
Depreciation in your company
The option(s) that you have is to take a portion of the depreciation in year one, 2018 and then stretch the remainder of the depreciation over the next few years. You/the Company can also take the full depreciation expense for 2018, which will offset current year income and reduce the next year (or two’s) income as well. Either of those options is fully supportable by the documentation we have; however, the larger loss is certainly on the aggressive side and raises the possibility of the IRS attention simply due to the large amount and the dynamic change from last year’s income to a large loss.
The other issue that we have run into before with financed deductions is matching up deductions with cash flow. When a large depreciation deduction is taken upfront and then loan payments stretch out over a few years, there is a mismatch between cash flow and deductions. Future loan payments will be a use of cash – and not part of the deductions – which can create a cash crunch when the tax is due in the future. If the full depreciation expense is not taken for 2018, then future deductions will more closely align with loan repayments and reduce future tax bills.
I realize that this is a complicated scenario to consider and there are several possible outcomes to consider. Please let me know if there would be a good time to speak about this next week.
Best Regards,
GP CPA
Related Articles
Starting a Business in North Carolina or South Carolina?
Starting a business is exciting—it’s also a little like setting out on a road trip without a map (or GPS) if you’re not prepared. You might end up in a great place by sheer luck, but chances are, you’ll hit a few dead ends or take longer than necessary to get where you want to go. That’s where we, the CPAs and business advisors, come in handy.
Navigating the Unexpected Closure of Bench: GP CPA, P.C. Is Here to Help
In contrast to Bench, (RIP?), GP CPA, P.C. is a Certified Public Accounting firm located in the Southeastern United States. We are second generation CPAs and business advisors. We can take over for wherever it is that Bench left off and with us, you won’t experience a data hostage situation with our firm.
Don’t Panic: What to Do When You Get a Tax Notice
Picture this: You’re sifting through the mail, dreaming about coffee or a vacation, and then—bam! There it is. An ominous letter from the IRS or your state tax agency. Before you launch into a full-blown panic spiral, let’s talk through what this means and how to handle it. Spoiler alert: ignoring it won’t make it disappear.
Why Waiting Until January to Find a New CPA is Too Late
As a small business owner, managing your financial health is crucial not only for your business but also for your personal wealth. Yet, many business owners make a critical mistake—they wait until January to start searching for a new Certified Public Accountant (CPA).
I received funds from the Restaurant Revitalization Fund (RRF) program, now what do I do with the money?
First off, the funds are expected to be spent before the end of 2021, as an annual report to the SBA will be required at some point in the future. We are still waiting for guidance from the SBA regarding what this annual report will look like. It may make sense to draft a spending plan or budget to make sure all of the funds are spent on time and in accordance with the program rules. GP CPA can help you with this planning, so you can prevent a surprise surplus of funds. Spend wisely and timely!
How to Persuade Clients to Change Banks. Listen to Justin Prusiensky’s Guest Appearance on the Relay Financial Webinar
Our expert accountant Justin Prusiensky was recently interviewed as a guest speaker by Relay Financial to discuss how to persuade clients to change banks.
Comments
0 Comments