Answer:
d) All of the above
These strategies can be used by a business to maximize its current depreciation deductions:
a) Accelerate Depreciation: By accelerating depreciation, a business can take larger deductions in the earlier years of an asset's useful life. This can be done by using depreciation methods that front-load deductions, such as the double declining balance method or the sum-of-years' digits method. By maximizing deductions in the earlier years, the business can reduce its taxable income and related tax liability.
b) Utilize Bonus Depreciation: Bonus depreciation allows businesses to take an additional deduction in the year an eligible asset is placed in service. This allows for a larger deduction in the first year of depreciation. Bonus depreciation rules can vary year-to-year, but currently, it allows for a deduction of 100% of the cost of eligible assets placed in service.
c) Opt for Section 179 Expensing: Section 179 of the Internal Revenue Code allows businesses to expense the cost of qualifying property in the year it is placed in service, rather than depreciating it over time. This can provide an immediate deduction for the entire cost of the qualifying property, up to a set limit. For the 2021 tax year, the maximum deduction under Section 179 is $1,050,000, with a phase-out threshold of $2,620,000.
By utilizing these strategies, a business can maximize its current depreciation deductions and reduce its taxable income, leading to lower tax liability and potentially increased cash flow.
