Capital Investment, Cash Flow, and the Return of Full Expensing

For business owners, timing matters. Whether you’re making decisions about hiring, expansion, or capital investment, the tax code can play a major role in shaping both your immediate cash flow and your long-term growth potential. Thanks to the recently passed One Big Beautiful Bill (OBBB), two of the most powerful tools in the tax code, Section 179 expensing and bonus depreciation, just became significantly more valuable.

These provisions are designed to reward investment by allowing businesses to deduct the full cost of qualifying property in the year the purchase is made, rather than recovering the expense slowly over time. And with OBBB restoring 100 percent bonus depreciation and doubling the Section 179 limit, the second half of 2025 may be one of the best times in years to consider upgrading equipment, improving facilities, or making other strategic purchases.

At Strategic Tax Planning, we help business owners apply these incentives to reduce tax liability, improve cash flow, and position their businesses for sustainable growth. Whether you are considering a large capital outlay this year or simply want to better understand how the new rules apply to your operation, our team is ready to assist.

What Changed with OBBB?

Two key provisions of the OBBB have given small and mid-sized businesses renewed flexibility when it comes to deducting the cost of tangible property:

• Section 179 expensing limit increased from $1.25 million to $2.5 million per year
• Bonus depreciation restored to 100 percent of the asset cost, with no phaseout

Together, these changes allow businesses to write off a greater share of their capital expenditures in the year of purchase, improving present-year cash flow and lowering taxable income. For growing companies facing rising operational costs or looking to modernize their equipment, the updated rules offer an immediate incentive to invest.

Understanding Section 179 Expensing

Section 179 allows businesses to deduct the full purchase price of qualifying equipment, off-the-shelf software, and improvements to nonresidential real property, such as HVAC systems, roofs, and alarm systems, up to the annual limit. Under the OBBB, the expensing cap is now $2.5 million, with a phaseout beginning once total equipment purchases exceed $4 million. The deduction fully phases out at $6.5 million.

This targeted structure ensures that the benefit is concentrated among small and mid-sized businesses. Property must be used more than 50 percent for business purposes, and owners can choose which assets to apply the deduction to and in what amount. That flexibility makes Section 179 a highly customizable planning tool.

Bonus Depreciation: Back at 100 Percent

Bonus depreciation also allows for immediate expensing but operates differently. Rather than offering a capped deduction, bonus depreciation allows businesses to deduct a percentage of the cost of eligible property. Prior to the passage of OBBB, this deduction had been scheduled to drop to 40 percent in 2025. With the new law, it is fully restored to 100 percent.

Bonus depreciation applies automatically to all qualifying property within an asset class unless a taxpayer elects out. Unlike Section 179, there is no dollar limit or phaseout. It can also be used to generate or increase a net operating loss, offering additional planning flexibility for businesses with fluctuating income.

Using Both to Maximize Your Deduction

Section 179 and bonus depreciation are often used in tandem. Typically, businesses will first apply Section 179 up to the deduction limit and then use bonus depreciation to cover the remaining cost.

For example, a business that purchases $5 million in eligible equipment could apply Section 179 to deduct $1.5 million—based on a $1 million reduction due to the phaseout—and then use bonus depreciation to deduct the remaining $3.5 million. This results in a total first-year deduction of the entire purchase amount.

Used together, these incentives allow businesses to recover more of their investment up front, which can significantly strengthen financial performance in the year of acquisition.

Why Now Is the Time to Act

When businesses can deduct the full cost of capital investments in the same year they are made, it reduces the after-tax cost of acquiring that asset and improves liquidity. These benefits are especially valuable in a high-interest, high-cost environment, where every dollar of preserved cash flow makes a difference.

By taking advantage of the updated rules now, business owners can position themselves to expand capacity, modernize operations, or take on new projects while receiving a meaningful tax benefit.

How Strategic Tax Planning Can Help

The right approach to Section 179 and bonus depreciation depends on your business’s financials, future plans, and how your state conforms to federal tax law. Strategic planning ensures you apply these provisions in a way that maximizes your return and aligns with your broader goals.

Our team is here to guide you through that process. From timing purchases to modeling tax outcomes, we provide actionable advice to help you take full advantage of these incentives.

Whether you're looking to make major upgrades this year or simply want to understand how these changes could impact your long-term plans, now is the time to act.

Let’s Talk About What’s Next

If your business is planning capital investments or you want to explore how the new expensing rules might apply to your industry, let’s start a conversation. The earlier you plan, the more opportunities you'll have to take full advantage of these powerful tools. Let us help you turn today’s investments into tomorrow’s success, call us at (202) 455‑6010 or schedule time with our team here.