A Fast-Track Tax Deduction That Can Supercharge Your Business Growth

06/02/2025

As a small business owner, every dollar you save on taxes is a dollar you can reinvest in your business. One of the most effective tax planning tools is accelerated depreciation.

Accelerated depreciation allows you to write off the cost of assets faster, creating large upfront deductions that can significantly reduce your taxable income.

Whether you're buying equipment, vehicles, furniture, or even improving your property, understanding how and when to use accelerated depreciation could mean thousands in savings.

What Is Depreciation?

Let’s start with the basics.

When you buy an asset that will last more than a year—like a truck, a computer, or manufacturing equipment—you usually can’t deduct the full cost in the year of purchase. Instead, the IRS requires you to depreciate the asset, spreading the deduction over its useful life.

For example:

• A computer is depreciated over 5 years

• Office furniture over 7 years

• Commercial real estate over 39 years

This process reflects the asset’s declining value over time. But waiting 5, 7, or 39 years to get your full tax benefit? That’s not ideal.

Enter accelerated depreciation.

What Is Accelerated Depreciation?

Accelerated depreciation lets you take more of the deduction upfront, rather than evenly over the asset’s life. This means bigger deductions now—when they matter most.

Why Use Accelerated Depreciation?

✅ Reduce taxable income fast
✅ Free up cash for reinvestment
✅ Match deductions with high-income years
✅ Offset gains or other taxable events

There are two primary accelerated methods available:

1. Section 179 Deduction

Allows businesses to deduct the entire purchase price of qualifying equipment or software in the year it's placed in service.

• 2025 limit: $1,250,000 (phased out after $3,130,000 in total purchases)

• Must be used for business >50% of the time

• Applies to tangible personal property (equipment, furniture, off-the-shelf software), and some improvements to nonresidential property

2. Bonus Depreciation

Allows a percentage of the asset’s cost to be deducted in year one—after Section 179 is applied.

• In 2025, bonus depreciation is 40% (down from 60% in 2024)

• Scheduled to phase down to 20% in 2026 and phase out in 2027 unless Congress acts

• Applies to new and used assets (acquired and placed in service in the tax year)

• No cap on deductions or limitations based on income (unlike Section 179)

Tip: You can combine both. Take Section 179 first, then bonus depreciation on the remainder.

📌 Let’s look at an example:
Your business buys $200,000 in machinery in 2024. You elect:

• $150,000 using Section 179

• 40% of the remaining $50,000 ($20,000) using bonus depreciation

Total first-year deduction: $170,000
If you're in the 32% tax bracket, that’s a tax savings of $54,400—cash you can use to hire, market, or expand.

What Assets Qualify for Accelerated Depreciation?

Generally:

• Computers, office equipment

• Machinery and tools

• Vehicles used for business

• Furniture and fixtures

• Qualified leasehold, retail, or restaurant improvements

• Some components of real estate (via cost segregation)

❗ Real estate itself doesn’t qualify for accelerated depreciation—but certain components do, which is why cost segregation can be a powerful strategy (more on that shortly).

Section 179 vs. Bonus Depreciation: Key Differences

Cost Segregation: Supercharging Real Estate Deductions

Own commercial or rental real estate?

Cost segregation studies break your property into components—some of which (like carpet, cabinets, or lighting) qualify for 5-, 7-, or 15-year treatment instead of 39 years.

Many of these short-life assets qualify for bonus depreciation, allowing you to deduct large portions of the property in the first year.

📌 Example: A $1 million commercial building could yield $200K+ in bonus depreciation through cost segregation.

Common Pitfalls to Avoid

1. Forgetting to elect out of bonus depreciation: It’s automatic unless opted out, which may not fit your strategy.

2. Incorrect asset classification: Mislabeling assets can trigger audit issues or lost deductions.

3. Buying just for the deduction: Tax planning should align with actual business needs.

4. Missing state rules: Some states do not conform to federal depreciation (e.g., California).  We can help you identify those situations.

When It’s Not the Right Move

Accelerated depreciation front-loads deductions.  It might make sense to slow down depreciation and spread the tax benefit over multiple years if:

• You’re in a low-income year

• You expect higher income in future years

• You're planning to sell the asset soon

How We Help Business Owners

Our tax planning team helps clients:

• Choose between Section 179 and bonus depreciation

• Evaluate cost segregation studies

• Ensure assets are classified correctly

• Analyze short- vs. long-term tax impact

• Navigate federal and state depreciation rules

Final Thoughts

Accelerated depreciation isn’t just about tax breaks—it’s a cash flow and reinvestment strategy. When done right, it can fuel business growth, protect your bottom line, and give you a major tax advantage.

But with multiple rules, elections, and deadlines, it’s not something to DIY lightly.

Ready to take advantage of the deductions your business deserves?  Sign up today for a free discovery call.