What is Bonus Depreciation?
Additional depreciation is an additional amount of depreciation that can be claimed on an asset during the first year of ownership. Claiming this additional depreciation requires the asset to qualify under current regulations established by applicable tax bodies. In many cases, this type of accelerated depreciation is used as a means of stimulating the economy, increasing incentives for companies to replace old equipment or purchase additional equipment.
Many national revenue agencies provide guidelines for claiming bonus depreciation on assets acquired during the last completed fiscal year. In some countries, a large company's ability to claim this type of depreciation is somewhat limited, while smaller companies can claim higher percentages of depreciation on qualifying purchases. Since the regulations governing the calculation of this additional depreciation are subject to change from one tax year to the next, it is important to ensure that the most recent guidelines are used, as well as the most recent versions of any tax forms required to claim La deduction.
Business owners can claim additional depreciation on many different types of assets that are acquired and put into active service during the first year of use. For example, a company that owns an apartment building may be eligible for additional depreciation on air conditioning equipment purchased and installed in that building. Purchases of this type would qualify as property improvements and could be eligible for bonus depreciation during that first year, depending on the framework of applicable regulations.
When made available to taxpayers, this type of additional depreciation can serve as an incentive to stimulate a sluggish economy. The possibility to claim this additional depreciation helps the business owner to reduce the amount of tax due during the considered period. The end result is that the owner retains more of his business income, and presumably can use that retained income to make additional purchases and increase the cash flow into that economy.
Because some types of business assets may already be classified in a way that requires a different type of depreciation schedule, it is important to determine exactly how the tax agency classifies the asset. This avoids situations in which the entrepreneur would lose the opportunity to receive the depreciation bonus allowed by current tax legislation. At the same time, the correct classification of newly acquired assets means that tax returns are not rejected and sent back to the company for resubmission, a situation that sometimes leads to fines and fines.