Understanding Section 179 Expensing vs. Bonus Depreciation

Businesses often face a decision: use Section 179 expensing or bonus depreciation to maximize deductions? Understanding the differences and benefits of each can help you make the best choice for your financial strategy.

What is Section 179 Expensing? Section 179 allows businesses to deduct the cost of qualifying property immediately, up to an annual limit ($1,080,000 in 2022). It applies to:

• Tangible personal property

• Off-the-shelf software

• Certain improvements to non-residential property, such as security systems and HVAC.
  

Key Differences Between Section 179 and Bonus Depreciation

1. Limits: Section 179 has annual deduction caps; bonus depreciation does not.

2. Flexibility: Section 179 allows businesses to choose which assets to expense, while bonus depreciation applies automatically.

3. State Conformity: Some states don’t conform to federal bonus depreciation but allow Section 179 deductions.
   

A small business purchases $1 million in new equipment. Using Section 179, they deduct $1 million, reaching the cap. Any remaining property can then qualify for bonus depreciation.

How Arc&Ledger Can Help We guide you in selecting the most advantageous method for your business. Contact us to optimize your deductions.