BONUS DEPRECIATION Meaning and
Definition
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Bonus depreciation refers to a tax incentive or provision offered by the government that allows businesses to deduct a greater portion of the cost of qualifying assets in the year they are acquired. This provision aims to encourage capital investment and stimulate economic growth by providing immediate tax relief to businesses.
Under bonus depreciation, businesses are allowed to deduct a predetermined percentage of the qualified asset's cost in addition to the regular depreciation deduction. The percentage varies and is subject to change depending on legislation enacted at a given time. Typically, this percentage is higher than the normal depreciation rate and is intended to provide a significant upfront tax benefit.
To be eligible for bonus depreciation, assets must meet certain criteria, such as being new, tangible property with a determinable useful life. Common qualifying assets include machinery, equipment, vehicles, furniture, and software. Land, real estate buildings, and used assets generally do not qualify.
The main benefit of bonus depreciation is that it accelerates the tax deduction, allowing businesses to reclaim a larger portion of their investment costs immediately instead of spreading them over several years. By reducing taxable income, bonus depreciation can potentially lower a company's tax liability, resulting in improved cash flow and greater funds available for reinvestment or other business priorities.
It is important for businesses to stay informed about the specific rules and limitations of bonus depreciation, as these may vary depending on tax laws and regulations in different jurisdictions.
Etymology of BONUS DEPRECIATION
The term "bonus depreciation" is a compound word formed from the combination of the words "bonus" and "depreciation". Here is the etymology of both words:
1. Bonus:
The word "bonus" has its origins in Latin. It comes from the Latin word "bonus", meaning "good" or "kind". In Latin, "bonus" was used to refer to anything that was good, favorable, or advantageous. Over time, the word was adopted into English, retaining its positive connotations. In the context of finance and economics, "bonus" typically refers to an additional payment or reward given in addition to a regular salary or income.
2. Depreciation:
The term "depreciation" has its roots in the Latin word "depretiare", meaning "to lower in price" or "to depreciate". It was derived from the earlier Latin word "pretium", meaning "price".
