By Garry Bartecki – GB Financial Services, LLC
Pending tax changes may put cash in your pocket.
You know what they say: “Even a blind squirrel can find a nut once in a while.” Based on some expected tax changes coming down the line, you may be that squirrel.
I just received a review of pending tax changes that I have been told will become law for 2023 and 2024. And when they do, many contractors will have the opportunity to amend their 2023 tax returns and receive additional benefits that could reduce 2024 estimated tax payments.
The changes deal with:
- Bonus depreciation
- Section 179 write-off
- Interest expense limitations
- Independent contractor status.
Bonus Depreciation
The Tax Cuts and Jobs Act (TCJA) allowed bonus depreciation starting September 27, 2017, and before January 1, 2023, through 2022. After 2022, bonus depreciation was to phase out at 20% per year, meaning the 2023 bonus would only be 80% of qualified purchases, 60% for 2024 and so on through 2027. After 2027, you return to your normal tax depreciation, meaning that the tax benefits received because of equipment purchases are materially less than what you had compared to 100% bonus depreciation, which is a big difference regarding cash flow.
The proposed change is to reinstate 100% bonus depreciation through January 1, 2026, making it possible to use a 100% bonus for 2023, 2024 and 2025. Therefore, contractors that based their 2023 estimate payments figuring an 80% bonus, will find it will become a 100% bonus, which may create a refund on your 2023 tax return because you paid more than you had to.