Thinking About a Big Business Purchase? Here’s How Section 179 and Bonus Depreciation Can Help You Save

Are you considering a large business purchase before the year ends? If so, you’re not just investing in your company’s growth—you could also unlock significant tax savings. Two of the most valuable tools for business owners making asset purchases are Section 179 and bonus depreciation. These provisions allow you to deduct the cost of qualifying purchases, reducing your tax bill and improving your bottom line. But to take full advantage, it’s essential to understand how they work and the rules you need to follow.

How Section 179 Works

Section 179 is a powerful incentive for businesses to reinvest in themselves. It allows you to immediately deduct the full cost of qualifying equipment and other business property, instead of depreciating it over several years. For 2024, the maximum deduction limit is $1,160,000, and it begins to phase out if your total purchases exceed $2,890,000.

The types of assets that qualify under Section 179 include:

• Equipment and machinery

• Business vehicles weighing over 6,000 pounds

• Office furniture and technology

• Improvements to nonresidential property, such as HVAC or alarm systems

  
  

However, there’s a catch: you can only use Section 179 deductions up to the amount of your taxable income for the year. If your business has a lower profit or operates at a loss, you may need to carry forward unused deductions to a future tax year. Additionally, to qualify, the asset must be both purchased and put into use by December 31, 2024.

What About Bonus Depreciation?

Bonus depreciation offers another way to deduct the cost of business assets. Unlike Section 179, it doesn’t have income limitations or caps on total deductions, making it a great option for businesses planning larger purchases or those with lower taxable income. In 2024, bonus depreciation allows you to deduct 80% of the cost of eligible assets in the first year.

One of the key benefits of bonus depreciation is that it applies to both new and used assets, provided the equipment is new to your business. It’s also automatic unless you elect to opt out, simplifying the process for most taxpayers.

It’s important to note that bonus depreciation rates are set to phase down in the coming years. In 2025, the rate will drop to 60%, so this is a valuable opportunity to lock in higher savings while they’re still available.

Choosing the Right Deduction

So, which option is best for your business? It often depends on your financial situation and the type of asset you’re purchasing. Section 179 gives you more control, allowing you to choose which assets to deduct, but it’s capped by your taxable income. Bonus depreciation offers broader coverage and is better suited for businesses with large purchases or minimal taxable income.

For many businesses, the optimal strategy is to use both deductions together. You can apply Section 179 first to maximize your immediate savings and then use bonus depreciation for any remaining expenses.

If you want to take advantage of these deductions for 2024, don’t wait until the last minute. The asset must be operational by December 31, 2024, so plan your purchases now to ensure you meet the deadline. Additionally, keep in mind that some states have different rules for Section 179 and bonus depreciation, which could impact your overall tax strategy.

If you’re planning a business purchase or need guidance on Section 179 and bonus depreciation, reach out to us today at info@mkhstaxgroup.com. Let’s make sure your investments pay off—both now and in the future.