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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