Key Year End Tax Planning Series: Maximizing Tax Benefits with Section 179 and Bonus Depreciation

By Scott Hennessy On December 5, 2023
Scott is a CPA & Manager at BSB.

What is Bonus Depreciation/ Sec 179?

  • Both are tax laws designed to incentivize businesses to invest in fixed assets
  • Allows significant deductions in the 1st year rather than over the typical 5-7-9-10 years, etc.​
  • For 2023 - Bonus is capped at 80%, Section 179 is 100%

List of eligible depreciable assets:

  • Machinery
  • Equipment
  • Vehicles
  • Computers
  • Software
  • Office Furniture
  • Leasehold Improvements

These benefits apply based on when the asset is placed into service, so there is a tax planning opportunity to accelerate costs for purchases made prior to the end of the year and reduce your tax bill as a business owner.

Bonus depreciation is similar to 179 but has a few differentiation points:​

No dollar limit on purchases​

  • Good for cost segregation studies or large-scale projects with millions of qualifying purchases ​

Business does not have to be profitable​

X - Limited to 80%of the costs in 2023 (179 is 100%)​

X – Bonus decreases 20% annually over next 4 years​

X - New York State does not allow bonus depreciation​

Old Law Prior to 2023

Prior tax law from 2017-2022 allowed businesses to write off 100% of the purchase price of the eligible asset

New Law Starting in 2023​

Businesses can accelerate 80% of cost as bonus depreciation in first year, but this will now decrease 20% each year going forward

Bonus Depreciation Phase Out Schedule

  • 2022: 10%
  • 2023: 80%
  • 2024: 60%
  • 2025: 40%
  • 2026: 20%
  • 2027: 00%

Tip: If your company is planning to make a big purchase in the beginning of 2024, it may be to your advantage instead to purchase in 2023 to be able to write off 80% rather than 60%

  • Allows businesses to take an immediate deduction for purchases of business depreciable assets
  • GOOD NEWS: Section 179 is set to remain the same throughout the bonus depreciation phase out!

2023 Limitations​

  • You can expense up to 100% of eligible assets up to $1,160,000​
  • Full deduction allowed for total purchases up to $2,890,000 for the tax year, then the deduction will reduce dollar for dollar by the amount of the threshold

When to Use 179:​

  • Section 179 only applies if the business is profitable as it cannot be used to create a tax loss​
  • Businesses with equipment purchases below thresholds must be used before bonus depreciation

If you're a business owner in the New York Metro Area and need help making the best decisions for your business, request a consultation with our experienced accountants today. We look forward to providing you service.

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