2014 Depreciation Changes: Is Your Business Preparing for the Impact?

Bonus Depreciation: What If It's Really Gone?

From 2008 to 2013, business owners were able to take advantage of a popular tax break for new equipment purchases. The tax break, known as “bonus depreciation,” allowed businesses to deduct, depending on the year, either 50% or 100% of the cost of new equipment in the year of purchase, through a special bonus depreciation deduction. Any remaining cost was then depreciated over the tax life of the equipment. As it was originally meant to be a temporary stimulus measure, this federal income tax provision expired on December 31, 2013 and, as of this writing, has not been extended for assets purchased in 2014. Although it is still possible for Congress to extend the tax break, and it is being discussed, it is important that business owners consider how the elimination of bonus depreciation, which is bound to happen sooner or later, will impact tax liabilities and cash flow.

The elimination of bonus depreciation could seriously impact cash flow numbers for capital intensive businesses. Regardless of industry, the tax break has had a large impact on capital spending patterns and corporate cash flow because it reduced the amount of taxes companies had to pay, making capital expenditures more affordable from a cash flow perspective. However, the impact on leasing companies that have taken advantage of the deduction could b