Navigating the Small Business 6 Million Asset Test: Tips and Strategies

Small business owners have likely heard of the $6 million asset test. But what exactly is it, and how can small businesses navigate this test? In this article, we’ll take a closer look at the small business $6 million asset test, share tips and strategies for passing it, and offer real-world examples to illustrate our points.

What is the Small Business $6 Million Asset Test?

The $6 million asset test is a requirement that small businesses must meet in order to qualify for certain federal tax benefits. Specifically, the test applies to small businesses that want to take advantage of the Section 179 deduction or the bonus depreciation rule. These tax benefits allow businesses to deduct the full cost of certain qualifying assets in the year of purchase, rather than having to depreciate them over a longer period of time.

To qualify for these benefits, small businesses must have assets below the $6 million asset threshold. If a business exceeds this threshold, it can still take advantage of the tax benefits, but the amount of the deduction or bonus depreciation will be reduced.

Tips and Strategies for Navigating the Small Business $6 Million Asset Test

So, how can a small business navigate the $6 million asset test? Here are some tips and strategies:

1. Plan ahead: If your business is approaching the asset test threshold, start planning early. Consider delaying purchases of new equipment until the next tax year, or look for ways to sell or dispose of assets that are no longer needed.

2. Explore leasing options: Leasing can be a good option for businesses that need equipment but want to avoid adding to their asset base. Leasing allows businesses to use equipment without having to take ownership, which can help keep assets below the $6 million threshold.

3. Work with a tax professional: Tax laws can be complex, and the $6 million asset test is no exception. Working with a tax professional who is knowledgeable about the test can help ensure that your business is taking advantage of all available tax benefits and avoiding costly mistakes.

Real-World Examples

Let’s look at some real-world examples of businesses that have navigated the $6 million asset test successfully:

– A small dental practice was approaching the $6 million asset threshold due to new equipment purchases. The practice worked with a tax professional to review its options and ultimately decided to lease some of the equipment rather than purchasing it outright. This helped keep the practice’s asset base below the threshold and allowed it to take advantage of the Section 179 deduction and bonus depreciation benefits.

– A small construction company was struggling to stay below the $6 million asset test threshold due to a large increase in business. The company worked with a tax professional to review its options and ultimately decided to sell off some of its older equipment that was no longer needed. This helped the company stay below the threshold and continue to take advantage of tax benefits.

Conclusion

Navigating the $6 million asset test can be a challenge for small businesses, but with careful planning and the right strategies, it’s possible to pass the test and take advantage of valuable tax benefits. By exploring options like leasing, working with a tax professional, and managing your asset base strategically, you can protect your bottom line and keep your business on track for success.