Navigating Changes in Bonus Depreciation: Maximizing Tax Savings for Small Business Owners

As a small business owner, staying informed about the ever-evolving tax landscape is crucial to optimize your financial strategies. In particular, understanding the changes in bonus depreciation can significantly impact your tax savings. This article will explore the recent shifts in bonus depreciation and provide practical insights to help small business owners adapt and maximize their tax benefits.


Changes in Bonus Depreciation

Bonus depreciation has been a powerful tax incentive since its introduction in 2017. Initially set at 100% of the item’s purchase price, it allowed businesses to depreciate and write off the entire cost of qualifying assets in the year of acquisition. However, it’s important to know that changes to bonus depreciation are on the horizon.


The Phased Approach: From 100% to Zero

The bonus depreciation percentage will gradually decrease starting in 2023 in a planned phase-out. Knowing the gradual decreases is essential as a small business owner so you can plan accordingly. The phased percentages are 80% in 2023, 60% in 2024, 40% in 2025, and 20% in 2026. Finally, in 2027, the program will cease to exist.


Strategies to Adapt and Maximize Tax Savings

Given these changes, small business owners must implement proactive strategies to adapt and maximize their tax savings. Consider the following approaches:

1. Timely Asset Placement

To secure the higher bonus depreciation percentages, ensure that your qualified assets are “placed in service” before the end of each tax year. Merely purchasing the assets before year-end is insufficient; they must be used to qualify for the respective bonus depreciation percentage. Planning asset acquisitions and coordinating their placement accordingly will be crucial.

2. Utilizing Available Percentages

While the bonus depreciation percentages are decreasing, taking advantage of the available percentages is still advantageous. For example, in 2023, the first-year bonus depreciation is 80%. Small business owners should strategically evaluate their capital expenditure plans and consider accelerating purchases to leverage the higher percentages before they diminish further.

3. Combining Bonus Depreciation with Section 179

Small business owners can combine bonus depreciation with Section 179 to maximize tax benefits. Section 179 allows for the immediate expensing of qualifying assets, complementing the bonus depreciation strategy. Carefully analyze your equipment spending and determine if it falls within Section 179 limits, which can further enhance your tax savings.

4. Consulting with Tax Professionals

Navigating the complexities of tax provisions requires expertise. Seek guidance from tax professionals or advisors who can provide personalized advice tailored to your business needs. They can assess your situation, optimize your tax strategy, and ensure compliance with changing regulations.


As bonus depreciation changes, small business owners must stay proactive and adapt their tax planning strategies accordingly. Understanding the phased approach and implementing key tactics can maximize tax savings and optimize your financial position. These changes can be an opportunity to enhance your tax benefits and set your small business on a path toward continued success if implemented mindfully and strategically.


Contact us today if you would like to discuss how some of these strategies could be implemented in your business.