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Different treatment for different assets under new tax plan

President Donald Trump signed the long fought GOP tax proposal into law before taking a holiday break. The president put together a news conference to televise the event and used a bold marker to make the changes official. The changes will likely impact everyone throughout the country, both businesses and individuals.

Taxes impose different rates on different individuals depending on a variety of factors. The new law also treats assets differently. One specific area of interest involves the treatment of deductions for capital equipment or capital expenditures. 

How are capital assets and capital expenditures treated differently under the new tax plan?

The terms capital assets and capital expenditures refer to assets that are purchased by the business to help generate profits. Examples would include a bulldozer for a construction company or computer servers for tech firms.

In the past, businesses could deduct the cost to purchase these items but the deduction was spread out over a period of time, a process referred to as depreciation. The entire purchase price could not be deducted during the year of purchase.

The new law changes this.

The new law allows for the deduction of the entire purchase price in the tax year the item was purchased. A recent piece in the Harvard Business Review notes that this shift is designed to incentivize capital investment. More companies will invest in equipment that will benefit their business interests and get the deduction while reaping the rewards of the profits in the future.

This is just one of the many impacts of the new tax law on businesses throughout the country. Businesses can structure themselves to take advantage of these changes. An experienced tax attorney can help to better ensure your business practices are in line with applicable tax law. 

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