I hope you’ve been taking advantage of accelerated depreciation for the last few years. It’s been a vital tax break for small business owners, allowing them to claim big deductions when making major purchases.
The Tax Cuts and Jobs Act (TCJA) expires on December 31, 2025, and with it, accelerated depreciation. President Trump has said he’d like to extend provisions for accelerated depreciation under the TCJA. It’ll be important to monitor the situation as it develops.
Whether or not the Act sunsets, you should be taking steps to maximize your tax benefits.
With accelerated depreciation, business owners can front-load deductions.
It was instituted in 2017 as part of the TCJA. It allows businesses to claim 100% depreciation for assets like machinery, software, and property. (We will discuss the specific types of assets in a moment.)
The tax relief has been significant.
With accelerated depreciation, small businesses can front-load deductions for high-priced items in a single tax year. It’s hard to articulate the impact of this TCJA provision on growth-stage business owners in industries where high-dollar and high-risk capital investment is a prerequisite. In other words, many business owners must spend enormous amounts of money and take on debt, and it’s a normal cost of doing business.
Take, for example, a rapidly expanding construction company that purchases two four-ton excavators at $30K a piece. A substantial portion of that $60K is going to come right off the top of their gross taxable income. The deduction is cash that the business needs to spend on more equipment and more staff. Grow or die. That’s the reality.
The phase-out has already started.
That’s right — the days of 100% bonus depreciation are already over. Starting in 2023, the deduction dropped to 80%. That number decreases by 20% each year until it’s fully eliminated in 2027.
That means right now, in 2025, the rate is 40%.
Other TCJA provisions impact small businesses.
While accelerated depreciation is the feature of the TCJA I want to focus on today, three other provisions of the Act could have major implications if they’re also phased out.
Remember Section 199A deductions.
This is also known as the Qualified Business Income deduction. It allows individuals, estates, and trusts with income from pass-through entities to deduct up to 20% of their qualified business income.
Effectively, Section 199A means a lower tax burden for many small business owners.
Lower corporate tax rates may continue.
The TCJA reduced the corporate tax rate to 21%. But that figure doesn’t just apply to big corporations — small businesses structured as S corporations can also benefit.
Simplified accounting standards are likely to become the norm for small businesses.
The TCJA made accounting a little easier for small businesses. The Act provides that businesses with less than $25 million in revenue can choose to use the cash method of accounting instead of the accrual method.
In short, you have less of a need for extensive record-keeping and complicated accounting.
Trump has stated he wants to extend the TCJA.
Back in April of 2024, he said at a Palm Beach fundraiser that one of his core issues in his second term would be extending the Tax Cuts and Jobs Act.² He again said it would be a priority during a visit to the Senate building on January 6, 2025.³
There are pros and cons to extending the cuts.
I’ve mentioned the many benefits for small businesses if the TCJA is extended, but the cons are worth considering, too.
The Congressional Budget Office estimated in May 2024 that an extension would add $4.6 trillion to deficits over ten years.⁴ Some analysts also have concerns that the TCJA benefits higher-income individuals and corporations over small businesses and middle-class taxpayers.⁵
A range of assets qualify for accelerated depreciation.
Qualifying assets are typically significant properties that are expected to last your business more than one year, including assets like:
- machinery
- equipment
- vehicles
- software
- furniture
Again, businesses can currently deduct 40% of the cost of these assets (new and used) as long as they meet the required criteria.
Prepare for the continuation of bonus depreciation.
If bonus depreciation is extended, you should continue to take advantage of the deduction to reduce your taxable income.
If the Act is extended, the rate could stay at 40% or even return to 100%, although that’s unlikely because of Republicans’ slim majority in the Senate. The important thing is to monitor the news and adjust your plans accordingly.
But be ready for a phase-out, just in case.
If bonus depreciation is phased out, consider making investments sooner rather than later to maximize deductions before they run out.
Since the depreciation rate will decrease by 20% each year, it’s best to start with larger purchases and get them out of the way while you can save.
Proactive CPA advisory firms are looking at contingency plans; others are not.
We help businesses make the most of their tax obligations and plan for whatever’s next. Schedule a discovery call with us today.
Talk soon,
Jeremy A. Johnson, CPA
References
- Tax Cuts and Jobs Act, Pub. L. No. 115-97, 131 Stat. 2054 (2017). Available at: https://www.congress.gov/115/bills/hr1/BILLS-115hr1enr.pdf
- Luhby T. Trump tells wealthy donors he wants to extend his 2017 tax cuts. here’s why they’d benefit the most | CNN politics [Internet]. Cable News Network; 2024. Available from: https://www.cnn.com/2024/04/10/politics/trump-2017-tax-cuts-rich/index.html
- Cortellessa E. Inside Trump’s second administration [Internet]. Time; 2025. Available from: https://time.com/7208202/trump-inauguration-second-term-preview/
- Extending trump tax cuts would add $4.6 trillion to the deficit, CBO finds: U.S. Senate Committee on the Budget [Internet]. 2024 [cited 2025 Jan 20]. Available from: https://www.budget.senate.gov/chairman/newsroom/press/extending-trump-tax-cuts-would-add-46-trillion-to-the-deficit-cbo-finds#:~:text=Extending%20Trump% 20Tax%20Cuts%20Would,%244.6%20trillion%20to%20the%20deficit
- Sjanifer. Extending Trump-era tax cuts would worsen income inequality, analysts say. 2023. Available from: https://tax.thomsonreuters.com/news/extending-trump-era-tax-cuts-would-worsen-income-inequality-analyst-says/