A bookkeeper records an expense in one column and the value of the acquired asset in another, then depreciates the new equipment over its expected life to better capture the real state of a company’s assets, liquid and illiquid. ĭepreciation is an accounting practice, not an economic principle.
Section 179 expense full#
Full expensing was a historic practice until the need for accelerated revenue during World War II brought about expensing according to depreciation schedules. A better system would permit full expensing, allowing businesses to write off the full cost of capital investment immediately in the year in which the expense was incurred. The theory behind this is that companies can only deduct the portion of capital investment consumed in each year as equipment depreciates, although the practical effect is that companies must defer deductions for completed business expenditures into future years, effectively making a zero-interest loan to the government. In practice, however, rather than the cost of equipment being deducted from gross income the year in which the cost is incurred, businesses are required to deduct the cost of the equipment over time according to a depreciation schedule. Section 179 Expensing Bridges Accounting Practices and Actual Business ExpensesĬorporate taxation is ostensibly a tax on net income: corporate revenues less the cost of doing business. Now that the federal government has offered six-digit Section 179 allowances for more than a decade, holdout states are increasingly looking at raising state deduction limits or pegging them to federal allowances to remain competitive, less complicated, and growth-oriented.