As the end of the year approaches, many business owners are asking one key question:
“If I buy equipment, vehicles, or technology before December 31st, how should I expense it?”
That’s exactly what we tackled in our most recent Tax Tuesday webinar at Molen & Associates. If you missed the live session or need a refresher, we’re breaking it all down here in this guide — complete with real-world examples, strategy tips, and action steps for year-end planning.
Whether you’re a startup, a contractor, a real estate investor, or a business pulling in $10M+ in revenue, understanding how to use Section 179 and Bonus Depreciation effectively can lead to major tax savings.
🔍 What Is Depreciation?
Depreciation is how the IRS allows businesses to recover the cost of large purchases over time — rather than all at once.
For example, if you buy a $100,000 piece of equipment with a useful life of 5 years, standard depreciation would give you a $20,000 deduction per year.
But there’s a better way… sometimes.
📘 Enter Section 179 and Bonus Depreciation
These two tools let business owners accelerate their deductions — allowing you to expense all or most of the cost in the first year rather than over several.
Let’s look at each.
✅ What Is Section 179?
Section 179 allows businesses to immediately deduct the cost of qualifying property used in the business. It’s great for small to mid-sized businesses that are profitable and want to lower taxable income now.
2025 Section 179 Limits:
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Deduction limit: $1.22 million
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Phase-out threshold: Starts when purchases exceed $3 million
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Important: You can’t use Section 179 to create a loss. Your deduction is limited to your business’s taxable income.
Qualifying property includes:
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Equipment
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Business vehicles over 6,000 lbs
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Computers
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Furniture
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Some building improvements
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Off-the-shelf software
✅ What Is Bonus Depreciation?
Bonus Depreciation is similar to Section 179 but with fewer limits — and more flexibility.
Key Features:
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No dollar cap
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Can be used to create a loss
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Applies to both new and used property
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2025 deduction rate: 40% from 1/1/5 through 1/19/25 and then 100% moving forward thanks to the One Big Beautiful Bill.
Bonus Depreciation is ideal for:
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Large purchases
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Years when you’re showing a loss or have carryforwards
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Strategic tax planning across multiple entities or income streams
🔍 Section 179 vs. Bonus Depreciation: Side-by-Side Comparison
| Feature | Section 179 | Bonus Depreciation |
|---|---|---|
| Limit on deduction | $1.22M in 2025 | No limit |
| Can create a loss? | ❌ No | ✅ Yes |
| Applies to used property? | ✅ Yes | ✅ Yes |
| Phases out at high purchases? | ✅ Yes, after $3M | ❌ No |
| Income restriction? | ✅ Must have taxable income | ❌ None |
| Can combine with each other? | ✅ Yes | ✅ Yes |
🕰️ Timing Is Everything
Here’s a key reminder:
Assets must be placed in service by December 31 to qualify for a current-year deduction.
That means:
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The asset must be delivered, installed, and ready for use
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You can’t just order it or pay for it
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Plan for delays with shipping, setup, or backorders
💡 Real-World Strategy Examples
Example 1: Profitable Contractor
A contractor earning $250K in net income buys $100K worth of machinery.
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✅ Section 179 allows a full $100K deduction, reducing taxable income to $150K.
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❌ Bonus Depreciation could create a loss — but that might not be necessary.
Example 2: New Business With No Profit
Startup purchases $150K of computers and office equipment, but has no income in 2025.
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❌ Section 179 is limited due to lack of income.
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✅ Bonus Depreciation allows the business to create a net loss and carry it forward.
Example 3: Real Estate Professional
Real estate pro uses cost segregation to break out $200K of short-life assets from a rental property.
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✅ Bonus Depreciation allows full deduction of those short-life assets in year one.
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🎯 Advanced tax strategy to offset large commissions or other active income.
🧠 Things to Keep in Mind
Depreciation Recapture
If you sell an asset later, you may have to pay back some of the tax benefit through recapture — especially if you claimed 100% upfront.
QBI Deduction Impact
Reducing income too much with depreciation might shrink or eliminate your 20% Qualified Business Income (QBI) deduction.
Financing? Yes, You Can Still Deduct
If the purchase is financed (and you own the asset), you may still deduct the full value — even if you’ve only paid a portion upfront.
Example: You buy a $1M building, put down $200K, and finance the rest. If it’s placed in service in 2025, you may still deduct the full $1M (if eligible).
🔁 Planning Is Key: It’s Not “Set It and Forget It”
These strategies aren’t one-size-fits-all. In fact, poor timing can hurt more than help.
At Molen & Associates, we work with business owners year-round to:
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Coordinate depreciation with QBI, retirement contributions, and other deductions
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Forecast tax liability for 2025 and beyond
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Avoid common pitfalls like depreciation recapture, AMT impact, or underutilized deductions
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Strategically plan for growth, sale, or succession
✅ Year-End Planning Checklist
Before you make a big move, review:
- Expected net income for 2025
- Planned equipment or vehicle purchases
- Are you paying cash or financing?
- Will the asset be placed in service by December 31?
- Entity type: Sole prop, S-Corp, partnership, C-Corp
- Are you eligible for QBI, retirement, or charitable deductions?
📅 Ready to Get Started?
Don’t wait until December 31st! The earlier you plan, the more flexibility and opportunity you have.
👉 Schedule your Year-End Planning Session today.
Let’s review your numbers, purchases, and income goals — and help you make the best decision for your business.
📞 Call us at 281-440-6279
📧 Email: info@molentax.com
🗓️ Book online: www.molentax.com/contact
🧡 About Molen & Associates
Since 1980, we’ve helped thousands of small business owners, self-employed individuals, and real estate professionals take control of their taxes and grow with confidence. You’re not just a client — you’re family.
We turn tax confusion into tax confidence.
