Up to this point, tax planning for 2014 has been difficult due to the uncertainty surrounding bonus depreciation. We are receiving calls on a daily basis from our clients inquiring if this favorable deduction has been extended yet. Bonus depreciation has been around for over a decade and the provisions have allowed companies to immediately expense anywhere from 30%-100% of the cost of qualified capital purchases. The current Bill provides for a permanent extension of bonus depreciation equal to 50% of the initial cost.
The House Committee on Ways and Means will debate H.R. 4718 which provides for a permanent extension of bonus depreciation, as well as other tax extenders that deal with retirement planning and charitable giving.
Five Economic Benefits of a Permanent Bonus Depreciation
Supporters of bonus depreciation tout it as the best option to spur investment, lift wages, grow the economy, create jobs and increase federal revenue. According to The Tax Foundation, bonus deprecation would have a large impact on the economy and, according to the foundation’s analysis, be a revenue gainer in the long term in the following areas:
- Growth: Bonus depreciation would grow the economy by 1%. This would add $182 billion to the economy.
- Investment: Bonus depreciation would increase investment by over 3%. Permanently extending bonus depreciation would increase the capital stock (the tools we use to produce) by over 3% by lowering the current cost of investment.
- Wages: Bonus depreciation would increase wages by about 1%, with the largest increase going to those at the bottom.
- Jobs: Bonus depreciation would create 212,000 jobs.
- Revenue: Static revenue estimates are misleading. Bonus depreciation would increase federal revenue by about $23 billion a year in the long run, due to increased economic activity.
We are closely following the progress of this Bill and will keep you updated on its status. For more information contact Scott Cress or your Barnes Dennig advisor.