If you've ever bought equipment, furniture, or a laptop for your business, you’ve probably heard the term depreciation. But what does it actually mean? And how should you apply it when it comes to taxes?

Let’s break it down simply, so you know your options and can make the best move for your business.

What Is Depreciation?

Depreciation is how you write off the cost of business assets over time. Instead of deducting the full cost in one year, the IRS requires you to spread the expense over several years.

But depending on the situation, you can speed things up. That’s where accelerated depreciation methods like Section 179 and Bonus Depreciation come in.

The 3 Depreciation Methods You Can Use

You have two styles:

Straight-Line Depreciation – Slow and steady
Accelerated Depreciation – Larger deductions upfront

And under accelerated depreciation, you’ve got two tools: Section 179 and Bonus Depreciation.

Section 179: Flexible and Business-Friendly

Section 179 lets you deduct the full cost of qualifying equipment in the year you start using it—but only up to your profit.

Example:

Profit: $25,000
Equipment purchase: $25,000
You deduct $25,000 using Section 179
Taxable income: $0

But what if you want to show some profit for lending or credibility?

You can choose to deduct less.

Example:

Profit: $25,000
Section 179 deduction: $20,000
Remaining $5,000 is depreciated over time
Your tax return shows $5,000 in taxable income

This is great for business owners who want tax savings and a healthy financial picture on paper.

Bonus Depreciation: Fast, But Less Flexible

Bonus depreciation allows a 60% deduction in 2025. It applies automatically unless you opt out.

Example:

Equipment cost: $10,000
Bonus depreciation (60%) = $6,000 deducted
Remaining $4,000 is depreciated over time

Bonus depreciation can also create a loss, which may lower your tax bill—but it could hurt you when applying for loans or credit.

What Qualifies for Section 179 (And What Doesn’t)

To use Section 179, your asset must be:

Tangible (physical property)
Used more than 50% for business
Purchased and in use during the tax year
Not bought from a related party (like yourself or a spouse)

Common Assets That Qualify:

Laptops, phones, and computers
Desks, chairs, and office furniture
Cameras, tools, and machines
Work vehicles (with weight restrictions)
Off-the-shelf business-use software
Some improvements to commercial buildings

Assets That Do Not Qualify:

Can You Use All Three?

Yes. In many cases, you can use:

Section 179 first (up to your income and the limit)
Bonus depreciation on whatever remains
Straight-line depreciation on the rest

Order matters: Section 179 → Bonus Depreciation → Straight-Line

But keep in mind:
This doesn’t apply to every situation. Not all assets qualify. Your income, business structure, and goals all factor into the decision. Always evaluate the details or get help from a tax pro.

**What If You Only Use Straight-Line?**

That’s perfectly fine too.

If you:

Want smaller, steady deductions
Prefer to show more profit
Don’t want to create a loss
→ You can skip both Section 179 and bonus depreciation, and just depreciate the asset using the default straight-line or MACRS method.

When to Use What

SituationBest MoveWant to show profit for a loanUse partial Section 179; opt out of bonusLow income this year, high next yearUse bonus depreciation to create a loss nowSteady income, big equipment purchaseUse both Section 179 and bonus (if qualified)Need to stretch deductions over timeUse straight-line onlyProfit = purchase amountUse Section 179 to reduce taxable income to $0.

Final Thought

Depreciation is more than just a rule—it’s a strategy. The way you deduct your purchases affects not just your tax bill, but how your business appears financially.

If you're making big purchases this year or planning to apply for a loan soon, it's worth reviewing your options.

Disclaimer: This post is for general education and doesn’t cover every scenario. Tax laws can vary based on your location, income, and business type. Always talk to your tax professional about your specific situation before making a decision.