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The alternative minimum tax (“AMT”) was originally enacted as a means of taxing the income of high income individuals who enjoyed substantial tax savings because of tax preferences. For example, taxpayers with large amounts of capital gains taxed at lower rates and taxpayers with large amounts of certain kinds of unusual deductions were subject to AMT.
Over a period of years AMT has become onerous and affects more and more taxpayers. The new tax law does not provide the major changes that should have been considered.
Immediate Write-Off of Equipment and Vehicle Costs
Business owners typically have equipment and vehicles that are used in their businesses. Generally, these items will be useful for a number of years. Therefore, the tax depreciation rules provide that the costs of these items can only be deducted over a specified number of years, instead of immediately in the year of purchase.
For a number of years, a tax law existed (“section 179”) that allowed businesses to skip the depreciation rules for up to a specified amount each year. This meant that a business could immediately expense the costs of equipment up to this amount, instead of taking delayed deductions over a period of 3 to 10 years.
Under the current law, this specific amount that can be deducted immediately has been increased from $25,000 per year to $100,000 per year.
Bonus Depreciation
For new equipment and other depreciable property that is not (or cannot) be claimed as a deduction immediately for the year of purchase, there are favorable “bonus” depreciation rules. Under the previous law, you could deduct 30% of the cost of the new equipment in addition to the usual depreciation amounts (in other words, take a large deduction during the year of the purchase). This bonus depreciation percentage has been increased from 30% to 50%. Note: bonus depreciation cannot be taken on purchases of used equipment. |