the building is sold.
2. You’ re eligible for the“ pass-through” deduction. This deduction allows eligible business owners to deduct up to 20 % of their qualified business income( QBI) from certain pass-through entities, such as partnerships, limited liability companies or sole proprietorships. The deduction, which is available through 2025, can’ t exceed 20 % of an owner’ s taxable income, excluding net capital gains.( Several other restrictions apply.)
Claiming bonus depreciation or Section 179 deductions reduces your taxable income, which may deprive you of an opportunity to maximize QBI deductions. And since the QBI deduction is scheduled to expire in 2025, it makes sense to take advantage of it while you can.
3. Depreciation deductions will be more valuable in the future. The value of a deduction is based on its ability to reduce your tax bill. If you think your tax rate will go up in the coming years, either because you believe Congress will increase rates or you expect to be in a higher bracket, depreciation write-offs may be worth more in future years than they are now.
TIMING IS EVERYTHING Keep in mind that forgoing bonus depreciation or Section 179 deductions only affects the timing of those deductions. You’ ll still have an opportunity to write off the full cost of eligible assets over a longer time period. Your tax advisors can analyze how these write-offs interact with other tax benefits and determine the optimal strategy for your company’ s situation.
Doeren Mayhew’ s dedicated manufacturing tax advisors work closely with manufacturers to conduct year-end tax planning and identify tax credits and incentives available to them. To obtain tax planning assistance or to learn more, contact us today. ■
Can you deduct the cost of your website?
There was a time when websites were nothing more than“ online brochures.” But today, they’ re indispensable tools that many manufacturers use for critical business functions, including marketing and advertising, communications, supply chain management and e-commerce. Websites are especially important in the COVID-19 environment, as manufacturers rely more heavily on virtual rather than in-person interactions.
Developing an effective website can require a significant investment, but are those costs deductible for federal tax purposes? The IRS hasn’ t published any website-specific guidance, but general guidance on the tax treatment of hardware and software is instructive.
Hardware. Servers and other hardware used to maintain a website are treated like other computer equipment, which is typically depreciable over five years. But it may be possible to deduct 100 % of the cost in year one if you qualify for bonus depreciation or the Section 179 expensing election.
Software. Off-the-shelf software is generally amortizable over 36 months. Like hardware, however, it may also be eligible for bonus depreciation or Section 179 expensing. Internally developed software is typically amortized over 36 months, but, in some cases, it may be written off more quickly. For example, if your website is used primarily for advertising, it may be possible to deduct software development costs currently as“ ordinary and necessary business expenses.” And certain development costs may qualify as deductible research expenses.
Other options. If you engage a vendor to set up and operate your website, the payments are likely deductible business expenses. And if your business is new, you’ ll be eligible to deduct up to $ 5,000 in start-up expenses, including website costs, in year one.
The tax treatment of your website depends on your company’ s circumstances, so be sure to consult your tax advisor.
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