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When to revisit a business return for depreciation deductions

Final and additional proposed regulations pertaining to the 100% first-year depreciation deduction were recently released by the Treasury Department and IRS. In short, this allows a business to write off the full value of a capital asset during the first year of use rather than through a multi-year depreciation schedule.

The proposed regulations were part of the 2017 Tax Cuts and Jobs Act to help stimulate growth in the business sector. Finalizing the rule has, however, taken additional time.

What is included?

The new reg applies to depreciable assets with a recovery period of 20 years or less. This will generally include such assets as newly acquired machinery, business equipment, office and production computers, and even office furnishings. In some cases, it may also apply to certain business-acquired real estate.

Another requirement is that the assets were purchased or put into service by the business after September 27, 2017.

What should businesses do now?

Taxes should not be something you only consider in the first quarter. Depending on what types of business assets your firm acquired form late 2017 into 2018, it may make sense to revisit prior year tax returns with a professional.

Caveats to the general rule also apply. Certain property may not be eligible for additional first year depreciation. Determining when property was placed in use or the date construction began are other fact specific inquiries that could impact the ability to amend a past return to claim a larger deduction.

When it comes to tax law, it is better to get sound advice on the front end rather than defend against an IRS or Massachusetts DOR audit. And when letters from one of these organizations come addressed to your business, you need to open them and deal with them right away.

Nothing is wrong with ensuring that your business does not pay more than required. It is, however, sometimes a fine line between a valid tax mitigation strategy and something that raises red flags and crosses lines. Getting sound legal advice from a tax lawyer can prevent issues down the road.

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