Unlocking Tax Savings: Section 179 Expensing and Bonus Depreciation for Business Owners

As a business owner, you’re always looking for ways to maximize your bottom line and minimize your tax liability. One of the most powerful—but often overlooked—tax strategies available is the combination of Section 179 expensing and bonus depreciation. These provisions allow you to immediately deduct the cost of qualifying business assets, putting more cash back in your pocket and freeing up capital for growth. With recent legislative changes, these tools are more valuable than ever. Here’s what you need to know to take full advantage.

What is Section 179 Expensing?

Section 179 of the Internal Revenue Code allows businesses to deduct the full purchase price of qualifying equipment and software purchased or financed during the tax year, rather than depreciating those costs over several years. For 2025 and beyond, the maximum Section 179 deduction is $2,500,000, with a phase-out threshold at $4,000,000. This means you can expense up to $2.5 million of qualifying property immediately, but the deduction is reduced dollar-for-dollar once your total asset purchases exceed $4 million.

Qualifying property includes:

• Machinery and equipment
• Computers and off-the-shelf software
• Certain vehicles (with special rules for SUVs and heavy vehicles)
• Qualified improvement property (such as improvements to nonresidential real property, including roofs, HVAC, fire protection, and security systems)

Section 179 is limited to the amount of taxable business income for the year, but any unused deduction can be carried forward to future years.

What is Bonus Depreciation?

Bonus depreciation is a separate provision that allows businesses to deduct a significant percentage of the cost of eligible property in the year it is placed in service. Under the new law, for property acquired after January 19, 2025, 100% bonus depreciation is made permanent for qualified business property. This means you can fully expense the cost of most tangible property with a recovery period of 20 years or less—such as equipment, furniture, and certain improvements—without any annual dollar cap or income limitation.

Unlike Section 179, bonus depreciation can create a net operating loss, which can be carried forward to offset future taxable income. Bonus depreciation is also available to businesses of any size, making it especially valuable for companies making large capital investments.

How Do Section 179 and Bonus Depreciation Work Together?

The real power comes from combining these two strategies. The IRS requires that you apply Section 179 expensing first, up to the allowable limit, and then apply bonus depreciation to any remaining cost basis. For example, if you purchase $3 million of qualifying equipment, you could expense $2.5 million under Section 179 and then use bonus depreciation to immediately deduct the remaining $500,000.

This combination allows for maximum upfront deductions, reducing your taxable income and potentially lowering your estimated tax payments. It’s a cash flow game-changer, especially for businesses investing in growth or upgrading their operations.

Why Are These Strategies Overlooked?

Despite their benefits, many business owners miss out on these deductions due to a lack of awareness or confusion about the rules. The eligibility requirements, order of application, and interaction with other tax provisions can be complex. For example, certain vehicles have special limits, and improvements to leased property may qualify under specific circumstances. Additionally, the phase-out thresholds and income limitations for Section 179 can trip up those who don’t plan ahead.

Key Planning Tips

1. Time Your Purchases: To maximize deductions, consider the timing of your asset purchases. Assets must be placed in service by year-end to qualify for that year’s deduction.
2. Review Your Asset List: Not all property qualifies. Work with your tax advisor to identify which purchases are eligible and to ensure proper documentation.
3. Consider Your Income: Since Section 179 is limited to taxable business income, coordinate with your advisor to optimize the mix of Section 179 and bonus depreciation based on your projected profits.
4. Don’t Forget State Taxes: Some states do not conform to federal Section 179 or bonus depreciation rules, so check your state’s treatment to avoid surprises.

The Bottom Line

Section 179 expensing and bonus depreciation are two of the most powerful tax-saving tools available to business owners. By understanding and leveraging these provisions, you can significantly reduce your tax bill, improve cash flow, and reinvest in your business. As always, consult with your tax professional to tailor these strategies to your unique situation and to stay compliant with the latest tax law changes.

If you’re planning major purchases or upgrades this year, now is the time to act. Don’t leave money on the table—make Section 179 and bonus depreciation part of your tax strategy for 2026 and beyond.

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