ExpertEasy1 markMultiple Choice
CPA · Question 63 · Area 4: Entity Tax Planning
A business purchases equipment for $1,000,000 in Year 1. They want to maximize Year 1 deductions. Assuming they have sufficient income and the equipment qualifies, what is the optimal strategy?
A business purchases equipment for $1,000,000 in Year 1. They want to maximize Year 1 deductions. Assuming they have sufficient income and the equipment qualifies, what is the optimal strategy?
Answer options:
A.
Take Section 179 up to the limit, then Bonus Depreciation.
B.
Take Straight Line depreciation.
C.
Take Section 179 only.
D.
Capitalize and do not depreciate.
How to approach this question
1. Goal: Maximize deduction.<br/>2. Tools: Section 179 (Expensing) and Bonus Depreciation.<br/>3. Ordering: Section 179 is usually applied first to specific assets, then Bonus Depreciation applies to the remaining basis of qualified property.<br/>4. Result: Use both to expense 100% if allowed.
Full Answer
A.Take Section 179 up to the limit, then Bonus Depreciation.✓ Correct
A
To maximize deductions, the taxpayer should elect Section 179 (subject to taxable income limits) and then apply Bonus Depreciation (if applicable in that tax year) to any remaining basis.
Common mistakes
Thinking you can only use one or the other.
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