The benefits from the coveted bonus depreciation businesses have heavily relied on since 2017 are about to shrink significantly over the next four years — before finally sunsetting in 2027. Heading into 2024, now is the time for businesses to plan to maximize the tax deduction.
While businesses could deduct 80% of the purchase price of eligible assets upfront in 2023, that percentage will decrease to 60% in 2024 and continue dipping by 20% annually. This tax deduction has been significant in reducing taxable income. Businesses can act accordingly by getting ahead of the sunsetting deduction through an accelerated plan to pursue planned equipment investments now.
Between 2017 and 2022, U.S. businesses have taken advantage of this tax deduction by writing off 100% of the purchase value in the year of acquisition. In 2023, companies saw the first write-off dip. In 2024, businesses should consider where to get ahead of the remaining tax benefit by proactively evaluating where long-term value could be achieved through potential equipment purchases.
It’s worth noting that bonus depreciation can be used for almost any new or preowned equipment a company can purchase. Unless the law changes, the bonus depreciation will follow the following phase-out schedule:
- 2023: 80%
- 2024: 60%
- 2025: 40%
- 2026: 20%
- 2027: 0%
While businesses soon won’t be able to take full advantage of the bonus depreciation tax deduction, there is still time for companies to determine how acquiring equipment now or soon can provide a dual benefit — a tax deduction and a strategic investment for their business’ immediate and long-term growth.
Equipment financing provides five core opportunities for businesses considering acquiring new equipment to adapt to shifting industry or market trends or accelerate their business growth.
- Equipment acquisition boosts operational efficiencies. Businesses can reduce downtime and enhance performance with reliable equipment acquired through financing.
- New equipment with advanced technology can streamline production capabilities. Investing in tech-forward equipment can help businesses optimize production capabilities and improve sales impact.
- Reducing manual work and production lead times. Technological advancements, including automation, data analytics, and robotics, can identify opportunity areas and contribute to reductions in labor costs and lead times.
- Spurring growth with long-term cost savings. Instead of tying up existing capital in equipment purchases, financing allows businesses to free up resources to optimize long-term growth opportunities.
- Achieving scalability, flexibility, and adaptability. Equipment financing allows businesses the flexibility to scale operations up or temporarily wind down as market conditions change.
Ready to determine whether your industry and equipment acquisition needs match our programs? Reach out today to talk to a member of Gibraltar’s professional and experienced sales team.