STRATEGIES AND EVIDENCE FOR DEDUCTION OF BUSINESS EXPENSES UNDER INTERNAL REVENUE CODE SECTION 168(K), 179, AND 274

Micah Frankel and John Tan

Accounting & Taxation, 2021, vol. 13, issue 1, 75-96

Abstract: The Tax Cuts and Jobs Act (TCJA) of 2017 amended the Internal Revenue Code of 1986. TCJA (2017) increased the annual maximum amount of immediate expense of Section 179 to one million dollars, and the phase-out threshold to two and a half million dollars. TCJA (2017) amended Section 168(k) to allow a 100 percent additional first-year depreciation deduction for qualified property acquired and placed in service after September 27, 2017, and before January 1, 2023. The Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020, now allows taxpayers to also elect additional first-year depreciation deduction for qualified improvement property. Through statistical analyzes of IRS Corporation Depreciation Data from 2010 to 2016, this paper adds value to the literature by informing readers the popularity of Section 179 and 168(k) in which sectors of businesses. The tax code change itself has implications on actual tax liabilities for businesses. Businesses can change their practices, for example avoiding newly disallowed entertainment expenses, to account for the change in the tax code. This paper further contributes to the literature by (1) providing a summary of the latest details of Section 168(k), 179 and 274, (2) suggesting proactive tax strategies in terms of business expenses deduction to mitigate a taxpayer’s potential Federal corporation income tax liabilities, (3) demonstrating the application of Section 168(k), 179 and 274 through real-life numerical case examples.

Keywords: Depreciation; Entertainment; Internal Revenue Code; Section 168(k); Section 179; Section 274; The Tax Cuts and Jobs Act (search for similar items in EconPapers)
JEL-codes: M4 (search for similar items in EconPapers)
Date: 2021
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