Tax Alert: Bonus Depreciation Begins to be Phased Out In 2023

  • Published: July 12, 2023 — 5:22 pm

In a move that will impact taxpayers across the board, the bonus depreciation tax provision is being phased out in 2023. This provision has been a valuable tool for businesses, allowing them to deduct a significant portion of the cost of qualifying assets immediately. However, as part of the Tax Cuts and Jobs Act (TCJA) of 2017, the bonus depreciation percentage is being gradually reduced until it reaches zero.

The gradual phase-out of bonus depreciation serves to strike a balance between stimulating economic growth and ensuring sustainable tax policy. While the reduction is intended to avoid providing indefinite tax subsidies, it will require businesses to reevaluate their tax planning strategies. This change will have implications for budgeting, forecasting, and investment decisions, as companies adjust to the reduced tax benefits.

Small and medium-sized enterprises (SMEs) are particularly likely to be affected by this phase-out. These businesses often rely on tax incentives to manage cash flow and reinvest in their operations. With the gradual reduction in bonus depreciation, SMEs will need to explore alternative tax planning strategies and consider other available incentives to maintain their financial viability.

Taxpayers should also anticipate potential changes in tax liability as a result of the reduction in bonus depreciation. With a lower immediate deduction available, taxable income may increase, leading to higher tax bills for some businesses. Proactive tax planning and collaboration with tax advisors will be crucial to navigate these changes successfully and optimize tax outcomes.

In summary, the start of the phasing out of bonus depreciation in 2023 will have far-reaching effects on businesses and individuals alike. Staying informed, reassessing investment plans, exploring alternative incentives, and engaging with tax advisors will be essential to adapt to the changing tax landscape. By doing so, taxpayers can navigate the transition and make the most of available tax benefits in the coming years.