united-states, taxes, s-corporation, accountingThere are many ways to reduce corporate tax liabilities in the United States with expenses, but it seems much harder with investment purchases.
This corporation is a California, United States S-Corp election.
For example, I can reduce my corporate tax liability with the following annual expenses:
But, say we wanted to buy:
The second list, per my CPA, follows straight line depreciation so our tax benefit stretches over the life of the investment, but our company tax deduction is limited to the depreciation schedule determined by the investment or there is no tax benefit.
Is this always true?
This would mean a venture capital firm with 100M net income (cash) may only be able to invest in 70M worth of companies before they are hit with a 30% tax bill at end of year.
Are there large capital investments we can make and expense in the current tax year without depreciating?
Your CPA is correct, in general. Any capital used to buy physical assets that have a long life, like trucks, land, and property need to be depreciated over the life of the investment.
The same is true if you purchase a business. There is one exception, however, that my business was able to take advantage of when we purchased another business. The business we acquired had its own computers, furniture, and equipment. We were able to immediately depreciate the value of these items. They ended up being worth a little more than 25% of what we paid for the business. That meant about 25% of the purchase was expensed while the remaining 75% will be depreciating over the next 15 years (it’s been a little over two years since we made the purchase).
If your goal is to reduce your overall corporate tax liability, you should just plan on spending more money so that you reduce your overall income level. The easiest way to do that is to give yourself or your employees a bonuses that are run through payroll (assuming you’re an employee too). Or if your business is growing, then presumably you’re investing into that growth. If you’re planning your investments and cash usage carefully, you should be able to next to zero business income.
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