Definition of Bonus depreciation:
As per federal laws, US taxpayers are allowed to claim 50% of the basis of an asset during the year it was put into service. The remaining 50% of the assets basis may be then claimed for the regular depreciation amount. The law pertains to assets put in service after December 31, 2007 and before January 1, 2011 for the majority of property. For certain property with lengthier production periods, taxpayers have until before January 1, 2012.
Bonus depreciation is a tax incentive that allows a business to immediately deduct a large percentage of the purchase price of eligible assets, such as machinery, rather than write them off over the "useful life" of that asset. Bonus depreciation is also known as the additional first year depreciation deduction.
When a business makes an acquisition, such as machinery, the cost, for tax accounting purposes, has traditionally been spread out over the useful life of that asset. This process is known as depreciation and can sometimes work in a company’s favor. If depreciation is not applied, a company’s financial statement could take a severe hit, showing smaller profits or larger losses for the year it made the acquisition.
How to use Bonus depreciation in a sentence?
- Businesses should use IRS Form 4562 to record bonus depreciation as well as other types of depreciation and amortization.
- The rules and limits for bonus depreciation have changed over the years, and the latest ones are scheduled to expire in 2023.
- Bonus depreciation allows businesses to deduct a large percentage of the cost of eligible purchases the year they acquire them, rather than depreciating them over a period of years.
- It was created as a way to encourage investment by small businesses and stimulate the economy.
Meaning of Bonus depreciation & Bonus depreciation Definition