If you purchased capital equipment in 2021 and put it to use before year-end, you can take advantage of accelerated depreciation to write off 100 percent of your purchase.
In this video, Scotty Sykes, CPA CFP® discusses how accelerated depreciation works and how it may be your best option, but not always. If you anticipate higher income in future years, then depreciation over time may be a better strategy for tax planning.
Talk to us at Sykes & Company, P.A. to help you plan ahead for your pharmacy and for more pharmacy tax trends.
If you prefer to read this content, the video transcript is below.
Scotty Sykes – As we get into the end of the year, depreciation’s often a valuable tool for tax planning purposes. First of all, capital equipment, you know generally robots, you know pill counters maybe any improvements you’re making inside your pharmacy, you know those capital assets. Those are generally shown on the balance sheet as assets, fixed assets, and they’re written off over a period of time.
Currently depreciation, which is how you write it off, is very liberal in 2021 and in 2022 as well. Essentially the laws will allow you to essentially write off 100% of those assets in the year you put those items into use. So, they have to be put into use in the current year but assuming you can get those into use you again you do have aggressive depreciation options, that you can use to essentially like I said write it all off in year one.
So, for example, if you have a $100,000 robot that you’re purchasing, you’re able to get it in use for that by the end of the year and run a script through there, showing that you’ve got it in use. You essentially can take that $100,000 write-off and lower your taxable income by that $100,000.
Now, a common issue we run into or question rather is, can I take the $100,000 write-off using Section 179 or bonus depreciation? Those are the sections of the tax law how you can take that aggressive depreciation. But they all, they often ask, “Can you take that aggressive depreciation and depreciate it as well?” And the answer to that is no. You cannot double-dip with the depreciation.
You either take the normal depreciation which happens over a period of time, or you take the aggressive depreciation in year one.