05/22/2025
Quick Tax Tip: Know When to Hold ’Em, Know When to Fold ’Em with 100% Bonus Depreciation
Context: The “One Big Beautiful Bill” permanently restores 100% bonus depreciation, allowing businesses to immediately deduct the full cost of qualified property (e.g., machinery, vehicles, equipment) placed in service after 2025, instead of depreciating it over years. This applies to your small farm (40%), small business (20%), and S-corp (10%) clients, who often invest in equipment like tractors, tools, or delivery vans. But using 100% bonus depreciation isn’t always the best play—here’s how to know when to “hold ’em” (use it) and when to “fold ’em” (skip it).
When to Hold ’Em: Use 100% Bonus Depreciation
High Taxable Income This Year: If your farm, small business, or S-corp has significant taxable income in 2025 (e.g., a bumper crop year for farmers), taking 100% bonus depreciation maximizes your deduction, reducing your tax bill now. For example, a $100,000 tractor purchase could save $23,000 in taxes (assuming a 23% effective rate with the QBI deduction).
Cash Flow Needs: If your client needs immediate tax savings to reinvest in their business (e.g., more equipment, hiring), bonus depreciation frees up cash by reducing taxes upfront. This is ideal for farms or S-corps planning expansions.
New Equipment Purchases: Bonus depreciation applies to new or used property (e.g., farm machinery, computers) with a recovery period of 20 years or less. If your client buys qualifying assets in 2025, using bonus depreciation simplifies their tax filing and maximizes deductions.
When to Fold ’Em: Avoid 100% Bonus Depreciation
Low or No Taxable Income: If your client’s income is low (e.g., a tough year for a farm or small business), bonus depreciation could create a net operating loss (NOL). While NOLs can carry forward, they don’t provide immediate cash flow. Instead, consider regular depreciation (e.g., MACRS) to spread deductions over future, higher-income years.
State Tax Limitations: Oklahoma conforms to federal bonus depreciation, but some states don’t. If your client operates across state lines, check state rules to avoid losing deductions. Spreading depreciation might align better with state tax savings.
Planning for Future Sales: If your client plans to sell the asset soon, taking 100% bonus depreciation could trigger recapture (taxable income) upon sale, reducing long-term benefits. Opting for regular depreciation might minimize this risk.
Pro Tip for Southeast Oklahoma Clients: For farmers (40% of your base) buying equipment like tractors or irrigation systems, pair 100% bonus depreciation with the increased $2.5M Section 179 limit from the bill for maximum savings. For small businesses or S-corps (30%), consult with us to balance bonus depreciation with the 23% QBI deduction to optimize taxes. Timing is key—know when to hold ’em for big deductions now, or fold ’em to save for later!
Call now to connect with business.
