How Business Owners Can Use Accelerated and Bonus Depreciation to Cut Their Tax Bill
If you’re a small business owner thinking about buying equipment, vehicles, or upgrading your facilities, the new tax law — known as the One Big Beautiful Bill Act (OBBBA) — brought some big opportunities to save on taxes. One of the most valuable tools is accelerated and bonus depreciation.
Let’s break down what that means and how you can use it to your advantage.
What Is Depreciation (and Why It Matters)?
Depreciation is how businesses write off the cost of assets — things like machinery, computers, or improvements — over time. Instead of deducting the full cost when you buy it, the IRS normally has you spread the expense out over several years.
Accelerated and bonus depreciation change that timing. They let you deduct much more — sometimes 100% of the cost — in the first year you place the asset in service. That means a much larger deduction right away and lower taxes now, rather than later.
The New Law: Big Changes Under the One Big Beautiful Bill Act
Under previous law, 100% bonus depreciation was phasing out — dropping to 40% in 2025 and 20% in 2026. The OBBBA changed that dramatically:
- 100% bonus depreciation is now permanent for qualifying property placed in service after January 19, 2025.
- It now includes certain types of “qualified production property” — such as buildings and facilities used in manufacturing or production — if construction starts after that date and is completed before 2031.
- State tax rules may differ, so you’ll still need to check if your state follows the federal rules.
This means you can potentially deduct the entire cost of certain business assets in the year you buy and start using them.
How to Use Bonus Depreciation Strategically
Here are a few practical ways small business owners can use this to their advantage:
1. Time Your Purchases Wisely
If you know a profitable year is coming, consider buying and placing new equipment or vehicles in service before year-end. You could wipe out a large chunk of your taxable income with one smart purchase.
2. Use Cost Segregation for Real Estate
If you own a building, a cost segregation study can separate short-lived assets (like lighting, cabinetry, and flooring) from the structure itself. Those items often qualify for bonus depreciation — giving you a much larger upfront deduction. However, a word of caution: real estate activities can be considered ‘passive’ and there are complicated tax rules about whether or not you are able to use passive losses to offset other income.
3. Match Deductions to Your Income
Bonus depreciation is optional. You can elect out if you want to spread deductions into future years. This might make sense if you expect your income (or tax rate) to increase later.
4. Plan for Cash Flow and Future Sales
Accelerating deductions helps now but reduces deductions later. If you plan to sell the asset, be aware that some of the deduction may be recaptured (taxed again) when you sell. A good CPA can model this out for you.
An Example
Suppose your business buys $200,000 of new equipment in December and starts using it that same year. Thanks to the new law, you could deduct the entire $200,000 immediately, lowering your taxable income by that amount. That could easily save $40,000–$60,000 in taxes, depending on your rate and other factors — and improve your cash flow right away.
The Bottom Line
Bonus depreciation gives small business owners a powerful way to manage taxable income and cash flow. The One Big Beautiful Bill Act made it even more attractive by restoring and expanding full 100% expensing.
Before making large purchases, talk to your CPA about:
- Which assets qualify
- The best year to make the investment
- How state taxes and your future income might affect the benefit
Used strategically, bonus depreciation isn’t just a deduction — it’s a smart tax planning tool that can help you reinvest in your business.
Need help deciding when to buy or how to apply these new rules?
Our firm can run the numbers and help you plan your purchases to get the most tax benefit. Contact us today to discuss your situation.