What Is Bonus Depreciation?

Bonus depreciation is a tax incentive that allows business owners to immediately deduct a large percentage of the cost of qualifying business assets — like equipment, vehicles, or computers — in the year they’re placed in service, rather than spreading the deduction over several years.

Think of it as accelerated depreciation that helps you recover your investment faster, improving your cash flow.

Why Bonus Depreciation Matters to Small Business Owners

Bonus depreciation can lead to major tax savings, especially in years when you’ve made significant capital purchases. Instead of waiting 5 or 7 years to write off the full value of an asset, you may be able to deduct 100% of the cost upfront — depending on the year and current law.

Here’s why it matters:

• Reduces taxable income quickly

• Improves short-term cash flow

• Encourages reinvestment into your business

• Can offset other income if you’re profitable

  
  

With current phaseouts beginning after 2023, the timing of purchases is critical.

Common Examples of Bonus Depreciation

You might qualify for bonus depreciation on:

• Equipment (e.g., machinery, tools, printers)

• Office furniture

• Software

• Vehicles over 6,000 pounds (e.g., work trucks, vans)

• Leasehold improvements and qualified property

Example: You buy $50,000 worth of equipment in September. If it qualifies and you elect bonus depreciation, you might be able to deduct all $50,000 in that year — rather than over a 5- or 7-year period.

Related Terms and Common Misconceptions

• Section 179 vs. Bonus Depreciation: Both allow for accelerated write-offs, but they work differently. Section 179 has a dollar cap and is limited by taxable income. Bonus depreciation can be used even if it creates a loss.

• MACRS Depreciation: This is the traditional, multi-year depreciation method. Bonus depreciation is optional and can override MACRS for the first year.

• Misconception: Some believe bonus depreciation only applies to large businesses. That’s not true — any size business can claim it if the asset qualifies.

  
  

Tips for Applying Bonus Depreciation in Your Business

✅ Plan purchases strategically. If you're considering equipment upgrades, timing them before year-end could unlock large deductions.

✅ Track placed-in-service dates. Assets must be in use by year-end to qualify for the deduction that year.

✅ Work with your tax advisor. Bonus depreciation isn’t always the best move — especially if you want to manage your taxable income over multiple years or avoid creating a net operating loss.

✅ Keep solid records. Maintain receipts, financing documents, and asset use logs for audit protection.

Learn More

Bonus depreciation can be a powerful tool for lowering your tax bill — but only if applied correctly. Talk to Development Theory’s tax experts about whether bonus depreciation is the right fit for your business strategy this year.