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:
Deduction limit: $1.22 million
Phase-out threshold: Starts when purchases exceed $3 million
Important: You can’t use Section 179 to create a loss. Your deduction is limited to your business’s taxable income.
Qualifying property includes:
Equipment
Business vehicles over 6,000 lbs
Computers
Furniture
Some building improvements
Off-the-shelf software
✅ What Is Bonus Depreciation?
Bonus Depreciation is similar to Section 179 but with fewer limits — and more flexibility.
Key Features:
No dollar cap
Can be used to create a loss
Applies to both new and used property
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:
Large purchases
Years when you’re showing a loss or have carryforwards
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:
The asset must be delivered, installed, and ready for use
You can’t just order it or pay for it
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.
✅ Section 179 allows a full $100K deduction, reducing taxable income to $150K.
❌ 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.
❌ Section 179 is limited due to lack of income.
✅ 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.
✅ Bonus Depreciation allows full deduction of those short-life assets in year one.
🎯 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:
Coordinate depreciation with QBI, retirement contributions, and other deductions
Forecast tax liability for 2025 and beyond
Avoid common pitfalls like depreciation recapture, AMT impact, or underutilized deductions
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.
