New equipment can provide a host of benefits to your organization, from greater operating efficiencies and cost savings to energy conservation. And the 2017 Tax Cuts and Jobs Act introduced new rules governing the depreciation of business equipment that are business-friendly, making it easier to undertake an equipment purchase. With the new rules, and their accelerated methods for depreciation, many businesses are finding that purchasing new equipment is equivalent to many other expenses.
If you’re considering a new equipment purchase, you should ask three critical questions.
- What benefits will the new equipment provide?
Your evaluation should consider factors such as improved efficiency, greater uptime, increased productivity, enhanced quality, and the opportunity for product line expansion.
- What costs will be incurred?
The potential costs of new equipment can include decreased cash flow, employee training, operational integration with existing systems, increased property taxes, and financial statement implications. You also should consider the impact of potential technical obsolescence.
- How should the equipment be acquired?
It’s important to analyze and choose the purchase and financing structure that make the most sense for your organization so that you maximize the tax and business advantages.
While the new Tax Cuts and Jobs Act can be a windfall for companies needing new business equipment, there are a few other important factors you should consider before making such a significant investment. First, be sure you understand any state and local tax implications, keeping in mind that many state regulations differ from the new federal rules. It’s also critical to understand the timing with regards to state deductibility.
A second important consideration is when to claim the depreciation of your business equipment so that you optimize marginal tax rates and the timing of your deductions. Deducting too early may save on your current taxes, but at the cost of future opportunities to maximize profitability.
A cloud-based ERP software solution like Sage 100cloud can help you make the most of all your investments. To find out more about MicroAccounting and our robust solutions, including Sage 100cloud, call us today at 855.876.3773.