Small Business Owners! Tax Depreciation Strategies

Finding ways to reduce your tax burden is essential for maintaining healthy cash flow. One of the most powerful tax-saving tools at your disposal is depreciation.

This guide breaks down the four (4) key depreciation strategies that can benefit your small business in 2025 and beyond.

When you receive a 1099-NEC instead of a W-2, it means the company has classified you as an independent contractor rather than an employee. This classification affects your tax responsibilities in several important ways:

Depreciation is a tax deduction that allows you to recover the cost of certain property over time. It's based on the idea that assets like equipment, vehicles, and buildings wear out as you use them in your business. Instead of taking one large deduction when you buy an asset, depreciation lets you deduct a portion of the cost each year over the asset's useful life.

Why does this matter? Because smart depreciation strategies can:

With the 2025 One Big Beautiful Bill Act (OBBBA) making significant changes to depreciation rules, now is the perfect time to review your strategy.

Before diving into specific scenarios, let's understand the main depreciation methods available to small business owners:

The simplest method that spreads the cost evenly over the asset's useful life. For example, a $5,000 computer with a 5-year life would give you a $1,000 deduction each year.

Allows you to deduct the full purchase price of qualifying equipment in the year you buy it. For 2025, you can deduct up to $1.22 million, subject to certain limitations.

Thanks to the OBBBA, 100% bonus depreciation has been restored for 2025 and beyond. This lets you deduct the entire cost of qualified assets in the first year.

Sarah owns a small manufacturing business and needs to purchase a new CNC machine for $50,000. She's trying to decide the best way to handle this purchase for tax purposes.

Sarah can use Section 179 to deduct the entire $50,000 in the year of purchase, as long as her business has enough income to offset the deduction.

With 100% bonus depreciation restored under OBBBA, Sarah can deduct the full $50,000 even if her business shows a loss for the year.

If Sarah expects higher profits in future years, she might choose the 5-year MACRS schedule, which would give her larger deductions when her tax rate might be higher.

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Michael runs a consulting business and needs to purchase a vehicle for client visits. He's considering either a sedan ($35,000) or an SUV weighing over 6,000 pounds ($60,000).

For the sedan, Michael faces stricter limits. For 2025, the maximum first-year depreciation for passenger vehicles is limited to $19,200 (including bonus depreciation).

For SUVs weighing between 6,000-14,000 pounds, Michael can take a Section 179 deduction of up to $30,500 in 2025. The remaining cost can be eligible for bonus depreciation.

David owns a small retail store and wants to make $75,000 in improvements, including a new HVAC system, roof repairs, and interior renovations.

It's important to note that land improvements like parking lots and landscaping typically must be depreciated over 15 years and cannot be expensed immediately under Section 179.