Bonus Depreciation is About to Phase Down to 80% in 2023

Bonus Depreciation is About to Phase Down to 80% in 2023

In 2022, IRS Section 179 has a deduction limit of $1,080,00 for equipment and off-the-shelf software, with a spending cap of $2,700,000. After the spending cap of $2,700,000, a purchaser can take Bonus Depreciation of 100%. Starting in 2023, Bonus Depreciation will be reduced from 100% of the purchase price in the first year to 80% of the purchase price. Each year after that, Bonus Depreciation will be reduced by 20% until it reaches $0.

In 2023, the IRS Section 179 deduction limit will be $1,160,000 and the spending cap will be $2,890,000. Any Bonus Depreciation taken after the spending cap of $2,890,000 will only be 80% instead of the 100% allowed in 2022.

2022 is the last year to get the 100% Bonus Depreciation. If you want to purchase equipment or expensive software, such as ERP, CRM or HR software by the end of 2022 to take advantage of Bonus Depreciation, and don’t have the cash flow, financing from Dimension Funding can make it happen. It’ll be tight but it’s doable. Fill out our online application and one of our financing gurus will reach out to you.

Have a wonderful holiday season!

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Tax Benefits of Buying Equipment & Software Before December 31, 2022

Tax Benefits of Purchasing Equipment Before the End of 2022
Tax Benefits of Purchasing Equipment Before the End of 2022

Tax Benefits of Buying Equipment & Software Before December 31, 2022

It’s almost the end of the year 2022 and the start of a new year.  Your company will want to take stock of potential tax write-offs available to your company before the year ends. One of those tax write-offs is under IRS Section 179 which allows you to write-off up to $1,080,000 for equipment or software and thereby reduce your tax liability.

It’s an opportunity to reduce your taxes while getting essential equipment for your business. You can start the new year by upgrading your business assets or expanding to increase your business while reducing your overall tax liability for 2022.

Check with your accountant or tax professional to see what tax write-offs are available to you. Depending upon your top tax bracket, you could write off a substantial portion of the purchase price of new equipment or software.

Section 179 Tax Write-Offs

The tax write-off under IRS Section 179 applies to most types of business software and equipment including:

This list is not exhaustive. Pretty much any business asset is covered under IRS Section 179. There are some exceptions of course but IRS Section 179 is pretty expansive. This tax benefit was designed to help small and medium-sized businesses to invest in themselves and to succeed.

Take advantage of it before December 31, 2022 if you want the tax benefits.

If you don’t want to impact your cash flow, you can finance the software or equipment purchase with a financing company such as Dimension Funding. You make monthly payments over the lifetime of the asset, generally up to 60 months. As an added bonus, you may qualify for a 90 days deferment before you have to make your first monthly payment. Your new equipment can be earning you money for 90 days before you make your first monthly payment. With the tax write-off, it might be a good idea to purchase any needed business equipment or software before January 1, 2023.

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How the Inflation Reduction Act Impacts your Business and You and your Family

Inflation Reduction Act
Inflation Reduction Act

How the Inflation Reduction Act Impacts your Business and You and your Family

You may be wondering how the Inflation Reduction Act (IRA) is going to impact you and your business. Are the tax provisions going to impact your business? What provisions are available to benefit your business or you personally?

The Minimum 15% Tax on Businesses

You’ve heard that there is a minimum 15% business tax for companies that pay little or no taxes. However, it only impacts behemoths like Amazon, Nike, FedEx, HP and Salesforce. Small- or medium-sized businesses are not affected. 

ACA Subsidies Extended

The extension of ACA healthcare subsidies until 2025 will help in that the employees of small businesses will be able to afford health insurance. For many small businesses, providing health insurance to its employees is a major expense. Having ACA subsidies means that your employees can get health insurance even if you aren’t able to offer it.

The Inflation Reduction Act’s Impact on Homeowners

A major part of the IRA is moving to clean energy sources and using less energy to provide the same benefits.

Renewal Energy for Homes

Renewal Energy is a big one with a big impact on clean energy producers and green home remodeling companies. Consumers can get the following rebates starting this year:

  • Up to $1,750 for a heat pump water heater
  • $8,000 for a heat pump for space heating or cooling
  • $840 for an electric stove or an electric heat pump clothes dryer
  • $4,000 for a breaker box upgrade
  • $1,600 for insulation, air sealing and ventilation
  • $2,500 for electric wiring

Green remodeling will jump from a one-time $500 tax credit to an annual $1,200 / year. Many homeowners who previously couldn’t afford to “green” their home energy production will be incentivized to do so. Companies who offer these “green” services will see demand skyrocket with these incentives offered for the next 10 years. Not only will this reduce our carbon footprint, but it will reduce costs on the average household by $170 to $220 a year in electricity costs.

Tax Credits for Solar Panels

Homeowners can combine the tax credit of up to 30% for solar panels with battery systems that allow homeowners to store excess energy. This tax break for batteries starts in 2023.

Rebates for Reducing Home Energy Usage

Homeowners could get up to 50% of the cost of efficiency retrofits such as insulation and HVAC installations up to a dollar cap of up to $8,000.

Tax Credits for Electric Vehicles

The Inflation Reduction Act’s vehicle tax credits for new ($7,500) or used ($4,000) EVs is aimed at low and middle income buyers and excludes luxury EVs that sell for more than $55k or a truck or SUV that sells for more than $80k. This is a mixed bag since the downside is that the critical minerals needed to make EV batteries must come from North America or our free trade partners which eliminates quite a few EVs. However, there are still quite a few EVs left that can be purchased.

Also, there are income requirements for the $4,000 tax credits for used EVs. If you are single, your AGI can’t exceed $75,000; a married couple’s AGI can’t exceed $150,000 to get the tax credit for used EVs.

Medicare Negotiation

The IRA also allows Medicare to negotiate drug prices. That will bring down costs of many drugs. In particular, the cost of insulin will be capped at $35 / month starting next year. It will also cap the total amount that people on Medicare pay for prescriptions to $2,000 per year.  If you are on Medicare, this could mean big savings for you.

The Inflation Reduction Act’s Impact on your Business

Electric Vehicles for your Business

With incentives to purchase EVs it might make sense as a business to invest in EVs rather than gas-powered vehicles. There are commercial energy tax credits available in the Inflation Reduction Act for many small businesses.

R&D Tax Credit

The IRA also doubles the maximum R&D Tax Credit that can be applied against payroll taxes. It is up to $500k from $250k. The concept of R&D is a very loose one and you could qualify. Check with your accountant or tax attorney.

Creation of Businesses

According to the head of investment at Bill Gates’ Breakthrough Energy Ventures, between 300 and 1,000 new companies might be created om the climate space. Depending upon the business you are in, this might provide you with more customers for your products or services. It could also provide you with more energy efficient products in the future.

Conclusion

There is no doubt that this is a transformative bill, particularly in the area of climate change. It is estimated that the IRA could slash US emissions by 41% by 2030. You and your company can take advantage of the IRA’s provisions to move to cleaner and less expensive energy. Since energy costs are large part of inflation, it should also bring down inflation, which will benefit businesses and consumers.  It will reduce our dependence on foreign oil and help to reduce our carbon emissions.

You can make your business more energy efficient. You can also make your home more energy efficient. All with rebates and tax breaks to help you do so. It’s a win win. As always, we are available to finance your eligible business purchases.

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Recession? What Recession?

Visual of Thriving During a Recession
Visual of Thriving During a Recession

Recession? What Recession?

Steps to Prepare your Business for an Economic Downturn

Is there going to be a recession in the next 12 months? Are we in a recession now? Experts offer conflicting views. Fed Chair Jerome Powell says “he doesn’t think the U.S. is currently in a recession. … There are too many areas of the economy that are performing too well.”

Ellen Zentner at Morgan Stanley says, “the probability of a recession in the next 12 months is about 30 percent, according to the bank’s models.” Bank of America and S&P Global Ratings puts the probability of a recession at 40%.

Then there’s the discussion of what constitutes a recession. Experts are divided on this as well. However, as a business, you know when your business earnings start to drop. No matter how an economic downturn is labeled, if it impacts your bottom line, you need to take action.

Here are some ideas on how prepare for and thrive during an economic recession or downturn:

Have a Financial Plan

Don’t wait until you are in the middle of a recession to put together a plan. Put together a company plan now. It will help with guidance on how to successfully navigate the recession and keep the company from having a knee jerk reaction and possibly costing the company long term.

Emergency Fund

If you are an individual, you are urged by financial gurus to have an emergency fund. It’s good advice for businesses too to have enough working capital on hand to weather any economic downturns. Have enough cash on hand to handle anything that arises during a downturn.

Cut Out Unnecessary Costs / Numbers Don’t Lie

Take a long look at your budget. Are there expenses that aren’t bringing in an ROI or you know just aren’t working. Cut them from your budget. Even small items can add up. Take a look at the corporate credit cards. What expenses can you prune? It’s amazing how many items get paid for and then either never used, or used and then forgotten about.

Cut back on discretionary spending such as travel, high-cost lunches, etc., unless the spending is related to ROI. Obviously, if trade shows bring in business, you would not want to cut back on those. But a lot of your discretionary spending can be pruned.

Don’t preemptively cut staff. In past recessions, companies that reduced their staffs because of a recession took years to come back because of the loss of key company and business knowledge. Instead, use this as an opportunity to update and train your staff. Studies have shown that companies that invested in themselves and their employees recovered quickly after a recession. Also, the pandemic changed employers’ recession strategy. Because so many employees never went back to their pre-pandemic jobs, employers want to hold onto good employees. It’s easier to keep good employees than to find them.

In HBR’s, “Roaring Out of Recession,” companies that had “layoffs may reduce costs quickly, they make recovery more difficult. Companies run the risk of scaling up too late, especially if hiring is more difficult than they anticipated. People are loath to work for organizations that reduce head count in difficult times. Moreover, as these companies rehire, costs shoot up.”

In Roaring Out Recession, it states, “The CEOs of pragmatic companies recognize that cost cutting is necessary to survive a recession, that investment is equally essential to spur growth, and that they must manage both at the same time if their companies are to emerge as post-recession leaders.”

Keep investing in your Business / Prepare for the Bounce Back

Companies that continue to invest in marketing and advertising come back faster from a recession. Recessions are a good time to update your technology, train your staff, etc. Many types of technology, such as ERP Systems, IT Systems, etc., reduce your costs and increase efficiency. By investing in technology before or during a recession, you can use technology to reduce your overall corporate costs.

Finance Large Purchases Over Many Years

Instead of reducing your working capital, finance large purchases for up to 5 years. While recessions can last this long, it’s highly unlikely that any 2022 recession would still be ongoing in 5 years because of the causes of this potential recession and the low unemployment numbers.

Focus on Long Term Goals

Think long term. Knee jerk reactions can cost your business money and personnel in the long run. See past this quarter or even this year. Plan for the future. What you do today can have a big impact for many years to come.

Look for creative ways to increase sales

If your company is hit particularly hard by a recession, look for creative ways to make more money. Tap the resources in your company to possibly expand your product offering or to creatively reposition your products to meet the moment.

Keep in contact with your customers

It’s easy to become cocooned during a recession. Instead, stay in touch with your customers. Maintain good relationships even if they can’t afford to purchase from you at this time. Reach out just to check in. They will remember who stood with them when they were experiencing problems.

Upshot

We are getting plenty of warning of a potentially upcoming recession. It’s really important to take steps now in order to be prepared.

If you are contemplating the purchase of big ticket items and want to save your working capital, we offer equipment financing, technology / IT financing, including software financing. Instead of a large outlay of cash, make fixed monthly payments over the lifetime of the asset up to 60 months. The Fed is likely to raise rates again in September so finance now before rates increase.

If you are an equipment, technology or software vendor, offering financing to your customers can allow them to purchase assets they need for their business while making low monthly payments. You get paid upfront. It reduces the impact of any economic downturn on your business because your customers can afford your products, even during a recession.

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