As we strategy the top of 2024, year-end tax planning is on the forefront of each accountant’s agenda. With altering tax rules and incentives, staying knowledgeable in regards to the newest updates is essential for optimizing shopper outcomes.
Bonus depreciation: phasing down, however nonetheless related
Bonus depreciation is a further first-year tax deduction that affords many taxpayers important money tax financial savings early on and helps future tax planning methods. Underneath the Tax Cuts and Jobs Act, the bonus is relevant to each acquired and newly constructed belongings positioned into service after Sept. 28, 2017. Whereas the speed of bonus depreciation continues to section down, it stays a vital software for accelerating deductions on certified property. Until there’s some legislative change, the scheduled phase-down interval, presents each alternatives and challenges for 2024:
- 2024: 60%
- 2025: 40%
- 2026: 20%
- Totally eradicated by 2027.
Accountants could wish to guarantee their purchasers maximize current-year advantages and advise them on the timing of asset acquisitions and in-service dates, notably for important purchases, to be able to make the most of the upper bonus depreciation charges earlier than they refuse additional.
Certified property contains belongings with a MACRS restoration interval of 20 years or much less, corresponding to ornamental lighting and Certified Enchancment Property. Notably, QIP applies to nonstructural, inside enhancements made after the constructing is first positioned in service by the taxpayer and stays a key focus space.
Tangible property rules: the repairs vs. capitalization debate
The tangible property rules present steerage for prices incurred to amass, produce or enhance tangible property. Issued in 2013, these rules are vital to a shopper’s capitalization, depreciation and expensing procedures for fastened belongings. Correct classification of expenditures below TPRs may end up in important tax financial savings. Accountants ought to conduct an in depth annual assessment of their purchasers’ capitalization insurance policies, fixed-asset accounts and current-year expenditures to determine gadgets eligible for expense remedy or the case of belongings completely faraway from service, an analysis and proper calculation of the partial asset disposition (which have to be taken within the tax yr of disposition). A number of the greatest practices embrace:
- Repairs: Bills assembly the “routine upkeep” or “de minimis protected harbor” standards might be expensed instantly, lowering taxable earnings.
- Enhancements: Many capitalized gadgets could also be eligible for expensing and/bonus depreciation.
- Tendencies: Present yr partial and/or total asset tendencies are being accounted for. It is necessary that the shopper addresses this write-off alternative within the present yr as tendencies can’t be retroactively corrected.
Accountants ought to revisit prior-year classifications for potential changes, particularly below the 5-year automated change rule for Kind 3115.
Price segregation: speed up depreciation with detailed evaluation
Price segregation research proceed to be a cornerstone of tax technique for companies with substantial actual property investments. These research reclassify elements of a constructing into shorter-lived belongings, permitting for accelerated depreciation.
Many ornamental inside finishes and particular objective electrical and mechanical belongings could also be depreciated over 5 and 7 years with land enhancements, or 15 years as an alternative of 27.5 or 39 years for buildings.
As we speak, value segregation research have gotten extra complicated however more and more rewarding, notably for tasks involving Certified Enchancment Property. For purchasers who personal nonresidential properties, important deductions might be acknowledged when they’re performing inside enhancements and renovations. Primarily based on hundreds of research, a big portion of our shopper’s constructing enchancment capex qualifies as QIP.
An intensive assessment of capitalized belongings can determine alternatives for reclassification and guarantee compliance with up to date rules. Shut consideration ought to be given to the scope of a examine to handle the element not solely wanted to assist belongings eligible for accelerated depreciation but in addition to function a reference doc to assist TPR actions through the possession interval.
Power tax incentives: leverage enhanced deductions and credit
The Inflation Discount Act considerably enhances vitality tax incentives, together with Sections 179D and 45L, making them a focus for companies investing in energy-efficient properties. Power-efficient buildings and houses provide profitable alternatives for tax financial savings:
Accountants ought to guarantee compliance with certification requirements and discover these incentives to offset building and renovation prices.
SALT updates and developments: keep forward of state-level modifications
State and native tax developments proceed to reshape compliance necessities:
- Growing motion towards flat tax charges;
- Changes to web working loss limitations, together with caps in Illinois and California;
- Growth of digital economic system taxation; and,
- Enhanced sin taxes, corresponding to Maryland’s elevated tobacco tax and California’s firearms excise tax.
As states adapt to financial pressures, accountants ought to monitor legislative modifications which will influence shopper liabilities or planning methods.
12 months-end motion gadgets for accountants
To organize purchasers for the yr forward and guarantee they’re well-positioned, accountants ought to think about the next steps:
- Assessment capitalization insurance policies: Replace shopper insurance policies to align with present rules and optimize expense classifications.
- Assess previous and present capitalized gadgets: Determine alternatives to reclassify belongings or apply protected harbor elections.
- Conduct fastened asset evaluations: Search for partial asset disposition alternatives, particularly for underutilized or retired belongings.
- Leverage Kind 3115: File for permissible accounting methodology modifications the place helpful.
- Plan for 2025 capex: Talk about the implications of future capital expenditures, notably as bonus depreciation phases out.
The 2024 tax surroundings is wealthy with alternatives however calls for diligence from accountants to navigate successfully. As all the time, proactive planning and thorough documentation stay important for compliance and maximizing advantages. For specialised help, think about consulting consultants in value segregation, vitality tax credit and TPR functions to boost the general technique.