ACRS is a way to claim anticipated depreciation on new property, resulting in higher tax deductions for a given year. The Tax Reform Act of 1986 established specific depreciation methods for several different classes within the ACRS. Companies can benefit from ACRS, but it may not always be in their best interest.
Often referred to as ACRS, accelerated cost recovery systems are essentially a way to claim anticipated depreciation on new property, resulting in higher tax deductions for a given calendar year. Here is some background on the development of the accelerated cost recovery system and why this process can be advantageous for various companies.
The amended ACRS came to life with the Tax Reform Act of 1986 in the United States. The purpose of the law was to create a standard system for depreciation on new purchases that would allow for an orderly system of claiming depreciation that would not vary from situation to situation. The Tax Law established specific depreciation methods for several different classes within the accelerated cost recovery system. Part of this structuring also involved defining what type of equipment was eligible for depreciation in various annual increments, such as three-, five-, seven-, ten-, fifteen-, or twenty-year classes. Some of the criteria used to classify equipment for depreciation are based on the type of equipment, its intended use, and the life expectancy of the equipment.
Using an accelerated cost recovery system can benefit businesses of any size. For example, large textile companies may use the principles of the accelerated cost recovery system along with their own internal obsolescence procedures for large and expensive machines and machine parts. Telecommunications companies can use the accelerated cost recovery system to provide tax breaks that allow them to purchase upgraded server equipment and bridges. Even a smaller company with limited partnership assets will find that using accelerated cost recovery system methods will help the bottom line with an additional tax break on new office equipment.
Employing the concept of an accelerated cost recovery system is not always in the best interest of a business. At the same time, it never hurts to look at the potential and see if it’s feasible to go ahead and take full advantage of the tax deduction in the early years at the expense of not having that deduction in later years. Companies that operate with consistently higher annual profit may find the use of ACRS not really helpful in a calendar year, and prefer to take standard rather than accelerated deductions. For others, the accelerated tax deduction can have a significant impact on the financial health of the company, allowing the deduction to be used to redirect funds to areas that will help improve the financial outlook for the coming year.
As a means of helping businesses allow deductions on essential equipment up front, the accelerated cost recovery system allows a corporation to get the most financial benefit from new equipment now rather than later. For companies that operate on a slim profit margin, this can be the difference between staying profitable and competitive, or falling behind and eventually going out of business.
Smart Asset.
Protect your devices with Threat Protection by NordVPN
