By Sound Accounting & Technology LLC.
Tax incentives and added production capacity can be strong incentives to invest. The IRS allows depreciation deductions for most types of tangible assets (buildings, equipment, machinery, vehicles, furniture, etc.) Likewise, intangible property such as patents, copyrights, and computer software are also depreciable. 50% special depreciation allowance is allowed on certain qualifying property placed in service before the end of 2019. However, lookout for the danger of over utilizing this strategy. Over investment in fixed assets can lead to working capital issues that can quickly become liquidity issues, forcing operational shutdowns, equity dilution, using up of long-term debt capacity. Further, when assets are sold some accelerated depreciation is recaptured. Keeping asset investments in view along with the effects of investments on working capital and cash flow can aid in planning and managing balance in fixed asset investments and improve the long-term health of the company.
