{"id":208571,"date":"2025-09-03T09:57:02","date_gmt":"2025-09-03T16:57:02","guid":{"rendered":"https:\/\/www.nationalfunding.com\/blog\/?p=208571"},"modified":"2025-08-19T15:35:49","modified_gmt":"2025-08-19T22:35:49","slug":"choosing-a-smb-depreciation-method-for-your-goals","status":"publish","type":"post","link":"https:\/\/www.nationalfunding.com\/blog\/choosing-a-smb-depreciation-method-for-your-goals\/","title":{"rendered":"Choosing a SMB Depreciation Method for Your Goals\u00a0"},"content":{"rendered":"<p><span data-contrast=\"auto\">As a small business owner, you have the ability to depreciate assets differently depending on your financial situation and business goals based on <\/span><a href=\"https:\/\/www.irs.gov\/forms-pubs\/about-publication-946\"><span data-contrast=\"none\">IRS publication 946<\/span><\/a><span data-contrast=\"auto\"> as some may give you more cash flow now and others provide it over multiple years. Two examples of this are 100% bonus and straight line depreciation.<\/span><span data-ccp-props=\"{&quot;335559738&quot;:240,&quot;335559739&quot;:240}\">\u00a0<\/span><\/p>\n<ul>\n<li aria-setsize=\"-1\" data-leveltext=\"\u25cf\" data-font=\"\" data-listid=\"6\" data-list-defn-props=\"{&quot;335552541&quot;:1,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;\u25cf&quot;,&quot;469777815&quot;:&quot;multilevel&quot;}\" data-aria-posinset=\"1\" data-aria-level=\"1\"><span data-contrast=\"auto\">100% bonus depreciation is best for a small business that wants the highest tax deductions and cash flow in a single year by writing off the entire purchase price of an asset in year 1.\u00a0<\/span><span data-ccp-props=\"{&quot;335559738&quot;:240}\">\u00a0<\/span><\/li>\n<\/ul>\n<ul>\n<li aria-setsize=\"-1\" data-leveltext=\"\u25cf\" data-font=\"\" data-listid=\"6\" data-list-defn-props=\"{&quot;335552541&quot;:1,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;\u25cf&quot;,&quot;469777815&quot;:&quot;multilevel&quot;}\" data-aria-posinset=\"2\" data-aria-level=\"1\"><span data-contrast=\"auto\">Straight line depreciation is better for a company that wants low deductions for stable profits across many years since it depreciates the asset in equal amounts each year.<\/span><span data-ccp-props=\"{&quot;335559739&quot;:240}\">\u00a0<\/span><\/li>\n<\/ul>\n<p><span data-contrast=\"auto\">While depreciation choices impact small business profit and cash flows directly, they indirectly impact a business&#8217;s ability to qualify for <\/span><a href=\"https:\/\/www.nationalfunding.com\/small-business-loans\/\"><span data-contrast=\"none\">small business loans<\/span><\/a><span data-contrast=\"auto\"> or attract outside investors depending on how the company uses the deduction.\u00a0<\/span><span data-ccp-props=\"{&quot;335559738&quot;:240,&quot;335559739&quot;:240}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">Here are two scenarios for 100% bonus depreciation:<\/span><span data-ccp-props=\"{&quot;335559738&quot;:240,&quot;335559739&quot;:240}\">\u00a0<\/span><\/p>\n<ul>\n<li aria-setsize=\"-1\" data-leveltext=\"\u25cf\" data-font=\"\" data-listid=\"2\" data-list-defn-props=\"{&quot;335552541&quot;:1,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;\u25cf&quot;,&quot;469777815&quot;:&quot;multilevel&quot;}\" data-aria-posinset=\"1\" data-aria-level=\"1\"><span data-contrast=\"auto\">100% bonus depreciation is better for a new business using <\/span><a href=\"https:\/\/www.nationalfunding.com\/equipment-leasing\/\"><span data-contrast=\"none\">equipment financing<\/span><\/a><span data-contrast=\"auto\"> for their production line as they will break even faster, letting them reinvest the cash saved from taxes into more inventory that can be sold. This leads to more customers, faster revenue growth, and less time to turn a profit.\u00a0<\/span><span data-ccp-props=\"{&quot;335559738&quot;:240}\">\u00a0<\/span><\/li>\n<\/ul>\n<ul>\n<li aria-setsize=\"-1\" data-leveltext=\"\u25cf\" data-font=\"\" data-listid=\"2\" data-list-defn-props=\"{&quot;335552541&quot;:1,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;\u25cf&quot;,&quot;469777815&quot;:&quot;multilevel&quot;}\" data-aria-posinset=\"2\" data-aria-level=\"1\"><span data-contrast=\"auto\">100% bonus depreciation can hurt a mature business\u2019s ability to get equity financing for expansion by making the small business unprofitable and unappealing to investors. Investors get paid from future profits, but large depreciation expenses can create a net operating loss (NOL) that the company carries forward to reduce future profits as well. This means it could be years before the company has any profits to pay investors.\u00a0<\/span><span data-ccp-props=\"{&quot;335559739&quot;:240}\">\u00a0<\/span><\/li>\n<\/ul>\n<p><span data-contrast=\"auto\">To qualify for depreciation, a business asset must have <\/span><i><span data-contrast=\"auto\">\u201ca useful life\u201d<\/span><\/i><span data-contrast=\"auto\"> greater than 1 year, making it a <\/span><a href=\"https:\/\/www.nationalfunding.com\/blog\/what-are-capital-expenditures-for-small-businesses\/\"><span data-contrast=\"none\">capital expenditure<\/span><\/a><span data-contrast=\"auto\">, and it must wear out over time. Examples of assets that don\u2019t get depreciated are:<\/span><span data-ccp-props=\"{&quot;335559738&quot;:240,&quot;335559739&quot;:240}\">\u00a0<\/span><\/p>\n<ul>\n<li aria-setsize=\"-1\" data-leveltext=\"\u25cf\" data-font=\"\" data-listid=\"5\" data-list-defn-props=\"{&quot;335552541&quot;:1,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;\u25cf&quot;,&quot;469777815&quot;:&quot;multilevel&quot;}\" data-aria-posinset=\"1\" data-aria-level=\"1\"><span data-contrast=\"auto\">Inventory because it\u2019s expensed as of <\/span><a href=\"https:\/\/www.nationalfunding.com\/blog\/what-is-cost-of-goods-sold\/\"><span data-contrast=\"none\">Cost of Goods Sold (COGS)<\/span><\/a><span data-contrast=\"auto\">, even if it remains on the books for more than a year. There\u2019s also a process separate from depreciation to write off inventory when it\u2019s not sold.\u00a0 <\/span><span data-ccp-props=\"{&quot;335559738&quot;:240}\">\u00a0<\/span><\/li>\n<\/ul>\n<ul>\n<li aria-setsize=\"-1\" data-leveltext=\"\u25cf\" data-font=\"\" data-listid=\"5\" data-list-defn-props=\"{&quot;335552541&quot;:1,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;\u25cf&quot;,&quot;469777815&quot;:&quot;multilevel&quot;}\" data-aria-posinset=\"2\" data-aria-level=\"1\"><span data-contrast=\"auto\">Land doesn\u2019t wear out according to the IRS, so it has an infinite useful life and does not qualify for depreciation.\u00a0<\/span><span data-ccp-props=\"{&quot;335559739&quot;:240}\">\u00a0<\/span><\/li>\n<\/ul>\n<p><span data-contrast=\"auto\">If you\u2019re thinking about buying new assets for your small business this year, here\u2019s how to start thinking about which depreciation model makes sense depending on your financial goals. By knowing these, you can discuss them as part of a multi-year tax strategy with your tax professional and make sure they match your situation given other expenses and deductions. <\/span><span data-ccp-props=\"{&quot;335559738&quot;:240,&quot;335559739&quot;:240}\">\u00a0<\/span><\/p>\n<h2 aria-level=\"2\"><span data-contrast=\"auto\">100% Bonus Depreciation: Maximizing Cash Flow This Year<\/span><span data-ccp-props=\"{&quot;134245418&quot;:true,&quot;134245529&quot;:true,&quot;335559738&quot;:240,&quot;335559739&quot;:240}\">\u00a0<\/span><\/h2>\n<p><span data-contrast=\"auto\">100% bonus depreciation is the best choice to maximize this year\u2019s cash flow since you deduct the entire purchase price from your pre-tax income, so you pay the lowest tax. Bonus depreciation can also create a loss where you pay no taxes this year and carry the loss forward to lower taxes in future years.<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">The <\/span><a href=\"https:\/\/www.congress.gov\/bill\/119th-congress\/house-bill\/1\/text\"><span data-contrast=\"none\">One Big Beautiful Bill Act<\/span><\/a><span data-contrast=\"auto\"> (OBBBA) made 100% bonus depreciation the default depreciation method for most business assets unless you choose to opt out. This means you\u2019ll automatically take the maximum deduction and get the highest cash flow this year unless you tell the IRS you want a different depreciation method.<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">Before doing this, go over all of your asset purchases as part of a companywide tax strategy because you can\u2019t opt out for individual assets and not others in the same <\/span><i><span data-contrast=\"auto\">\u201c<\/span><\/i><span data-contrast=\"auto\">asset class\u201d listed in <\/span><a href=\"https:\/\/www.irs.gov\/forms-pubs\/about-publication-946\"><span data-contrast=\"none\">IRS pub 946<\/span><\/a><span data-contrast=\"auto\">. Opting out of bonus depreciation for new carpet and appliances for rental properties means you must also opt out of bonus depreciation for trucks purchased in the same year since both assets fall under the <\/span><i><span data-contrast=\"auto\">\u201c<\/span><\/i><span data-contrast=\"auto\">5-year class.\u201d Fortunately, there is another depreciation option you\u2019ll learn about later that lets you go asset by asset.<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">The OBBBA also lets you opt in to 100% bonus depreciation for assets that wouldn\u2019t otherwise qualify as long as they are qualified production property (QPP) used entirely for production. Buildings and improvements are two examples that don\u2019t automatically qualify, but if the building is a factory or the improvement is a parking lot for a factory, then they are QPP and you can opt in to 100% bonus depreciation. If 25% of the building is used for admin and warehousing, then you\u2019re able to use bonus depreciation for 75% of the building that\u2019s used as the factory.<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">Other examples of assets that don\u2019t qualify for bonus depreciation are:<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n<ul>\n<li aria-setsize=\"-1\" data-leveltext=\"\u25cf\" data-font=\"\" data-listid=\"3\" data-list-defn-props=\"{&quot;335552541&quot;:1,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;\u25cf&quot;,&quot;469777815&quot;:&quot;multilevel&quot;}\" data-aria-posinset=\"1\" data-aria-level=\"1\"><span data-contrast=\"auto\">Residential real estate you rent out.<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/li>\n<\/ul>\n<ul>\n<li aria-setsize=\"-1\" data-leveltext=\"\u25cf\" data-font=\"\" data-listid=\"3\" data-list-defn-props=\"{&quot;335552541&quot;:1,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;\u25cf&quot;,&quot;469777815&quot;:&quot;multilevel&quot;}\" data-aria-posinset=\"2\" data-aria-level=\"1\"><span data-contrast=\"auto\">New headquarters and admin offices.<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/li>\n<\/ul>\n<ul>\n<li aria-setsize=\"-1\" data-leveltext=\"\u25cf\" data-font=\"\" data-listid=\"3\" data-list-defn-props=\"{&quot;335552541&quot;:1,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;\u25cf&quot;,&quot;469777815&quot;:&quot;multilevel&quot;}\" data-aria-posinset=\"3\" data-aria-level=\"1\"><span data-contrast=\"auto\">Assets used mostly outside of the US.<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/li>\n<\/ul>\n<p><span data-contrast=\"auto\">While bonus depreciation gives you the maximum cash flow by taking the biggest deduction this year, it might also create an operating loss you don\u2019t want or your assets might not qualify for it. That\u2019s where <\/span><a href=\"https:\/\/www.nationalfunding.com\/blog\/a-guide-to-the-section-179-deduction-and-its-changes\/\"><span data-contrast=\"none\">Section 179<\/span><\/a><span data-contrast=\"auto\"> elections and other depreciation methods come in.\u00a0<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n<h2 aria-level=\"2\"><span data-contrast=\"auto\">Section 179: Minimizing Taxes Paid Without Large Losses<\/span><span data-ccp-props=\"{&quot;134245418&quot;:true,&quot;134245529&quot;:true,&quot;335559738&quot;:360,&quot;335559739&quot;:120}\">\u00a0<\/span><\/h2>\n<p><span data-contrast=\"auto\">Section 179 has three benefits that help small businesses minimize their current year tax bill but prevent them from becoming unprofitable due to a large depreciation expense:<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n<ul>\n<li aria-setsize=\"-1\" data-leveltext=\"\u25cf\" data-font=\"\" data-listid=\"8\" data-list-defn-props=\"{&quot;335552541&quot;:1,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;\u25cf&quot;,&quot;469777815&quot;:&quot;multilevel&quot;}\" data-aria-posinset=\"1\" data-aria-level=\"1\"><span data-contrast=\"auto\">Deduct any amount between 1%\u2013100% of an asset purchase in year 1 and carry forward any unused portion of the deduction.<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/li>\n<\/ul>\n<ul>\n<li aria-setsize=\"-1\" data-leveltext=\"\u25cf\" data-font=\"\" data-listid=\"8\" data-list-defn-props=\"{&quot;335552541&quot;:1,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;\u25cf&quot;,&quot;469777815&quot;:&quot;multilevel&quot;}\" data-aria-posinset=\"2\" data-aria-level=\"1\"><span data-contrast=\"auto\">Choose individual assets within the same <\/span><i><span data-contrast=\"auto\">\u201casset class\u201d<\/span><\/i><span data-contrast=\"auto\"> without affecting other assets (unlike bonus depreciation where all assets in the same class must be the same).<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/li>\n<\/ul>\n<ul>\n<li aria-setsize=\"-1\" data-leveltext=\"\u25cf\" data-font=\"\" data-listid=\"8\" data-list-defn-props=\"{&quot;335552541&quot;:1,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;\u25cf&quot;,&quot;469777815&quot;:&quot;multilevel&quot;}\" data-aria-posinset=\"3\" data-aria-level=\"1\"><span data-contrast=\"auto\">This applies to assets that don\u2019t qualify for bonus depreciation.<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/li>\n<\/ul>\n<p><span data-contrast=\"auto\">Small businesses can maximize cash flow and minimize taxes paid without suffering a loss because Section 179 lets the business deduct any amount less than or equal to the price of the asset as long as it doesn\u2019t create a loss on the company\u2019s income statement. If a 50% deduction takes the company\u2019s taxable income to $0, then the remaining 50% of the Section 179 deduction gets carried forward for lower taxes and higher cash flow next year.<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">Companies can also use Section 179 for specific assets without impacting depreciation choices for other assets. A trucking business that purchases a new semi-truck and new computers can use Section 179 to fully write off the computers in year 1 and opt out of bonus depreciation for the semi-truck. This saves them money on taxes by deducting 100% of the computers plus the first-year depreciation on the semi. It also stabilizes cash flows across the next 4 years (the depreciation timeline for trucks) and lets them avoid a loss for the year\u2019s income statement.<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">Section 179 also minimizes a small business\u2019s tax burden by giving them a large deduction without creating a loss when their assets don\u2019t qualify for bonus depreciation like:<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n<ul>\n<li aria-setsize=\"-1\" data-leveltext=\"\u25cf\" data-font=\"\" data-listid=\"4\" data-list-defn-props=\"{&quot;335552541&quot;:1,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;\u25cf&quot;,&quot;469777815&quot;:&quot;multilevel&quot;}\" data-aria-posinset=\"1\" data-aria-level=\"1\"><span data-contrast=\"auto\">A new security system for a rental property.<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/li>\n<\/ul>\n<ul>\n<li aria-setsize=\"-1\" data-leveltext=\"\u25cf\" data-font=\"\" data-listid=\"4\" data-list-defn-props=\"{&quot;335552541&quot;:1,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;\u25cf&quot;,&quot;469777815&quot;:&quot;multilevel&quot;}\" data-aria-posinset=\"2\" data-aria-level=\"1\"><span data-contrast=\"auto\">An HVAC system replacement for headquarters.<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/li>\n<\/ul>\n<ul>\n<li aria-setsize=\"-1\" data-leveltext=\"\u25cf\" data-font=\"\" data-listid=\"4\" data-list-defn-props=\"{&quot;335552541&quot;:1,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;\u25cf&quot;,&quot;469777815&quot;:&quot;multilevel&quot;}\" data-aria-posinset=\"3\" data-aria-level=\"1\"><span data-contrast=\"auto\">Getting a new roof on a warehouse.<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/li>\n<\/ul>\n<ul>\n<li aria-setsize=\"-1\" data-leveltext=\"\u25cf\" data-font=\"\" data-listid=\"4\" data-list-defn-props=\"{&quot;335552541&quot;:1,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;\u25cf&quot;,&quot;469777815&quot;:&quot;multilevel&quot;}\" data-aria-posinset=\"4\" data-aria-level=\"1\"><span data-contrast=\"auto\">Investing in a parking lot expansion at the headquarters building.<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/li>\n<\/ul>\n<ul>\n<li aria-setsize=\"-1\" data-leveltext=\"\u25cf\" data-font=\"\" data-listid=\"4\" data-list-defn-props=\"{&quot;335552541&quot;:1,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;\u25cf&quot;,&quot;469777815&quot;:&quot;multilevel&quot;}\" data-aria-posinset=\"5\" data-aria-level=\"1\"><span data-contrast=\"auto\">Upgrading a drainage system for a golf course.<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/li>\n<\/ul>\n<p><span data-ccp-props=\"{}\">\u00a0<\/span><span data-contrast=\"auto\">Bonus depreciation and section 179 cover the vast majority of small business assets, but not all. There are other depreciation methods for assets that don\u2019t qualify or for when a company wants to spread the depreciation expense over as many years as possible.\u00a0<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n<h2 aria-level=\"2\"><span data-contrast=\"auto\">MACRS: Keeping Depreciation Expense Low to Keep Profits High<\/span><span data-ccp-props=\"{&quot;134245418&quot;:true,&quot;134245529&quot;:true,&quot;335559738&quot;:360,&quot;335559739&quot;:120}\">\u00a0<\/span><\/h2>\n<p><span data-contrast=\"auto\">When higher profit is more important than actual cash flow, using the Modified Accelerated Cost Recovery System (MACRS) for depreciation is the best choice because it spreads the depreciation expense across the most years possible, so each year\u2019s income statement shows the highest profit possible. MACRS is also the way companies must depreciate assets that don\u2019t qualify for 100% Section 179 or bonus depreciation including:<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n<ul>\n<li aria-setsize=\"-1\" data-leveltext=\"\u25cf\" data-font=\"\" data-listid=\"1\" data-list-defn-props=\"{&quot;335552541&quot;:1,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;\u25cf&quot;,&quot;469777815&quot;:&quot;multilevel&quot;}\" data-aria-posinset=\"1\" data-aria-level=\"1\"><span data-contrast=\"auto\">Residential real estate.<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/li>\n<\/ul>\n<ul>\n<li aria-setsize=\"-1\" data-leveltext=\"\u25cf\" data-font=\"\" data-listid=\"1\" data-list-defn-props=\"{&quot;335552541&quot;:1,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;\u25cf&quot;,&quot;469777815&quot;:&quot;multilevel&quot;}\" data-aria-posinset=\"2\" data-aria-level=\"1\"><span data-contrast=\"auto\">Non-manufacturing commercial buildings.<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/li>\n<\/ul>\n<ul>\n<li aria-setsize=\"-1\" data-leveltext=\"\u25cf\" data-font=\"\" data-listid=\"1\" data-list-defn-props=\"{&quot;335552541&quot;:1,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;\u25cf&quot;,&quot;469777815&quot;:&quot;multilevel&quot;}\" data-aria-posinset=\"3\" data-aria-level=\"1\"><span data-contrast=\"auto\">HVAC, security systems, new roofs, and other improvements to non-manufacturing properties (these qualify for Section 179 in general, but you have to use MACRS if you exceed the 179 limits).<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/li>\n<\/ul>\n<p><span data-contrast=\"auto\">Within MACRS, there are 3 options to determine the depreciation amount each year:<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n<ul>\n<li aria-setsize=\"-1\" data-leveltext=\"\u25cf\" data-font=\"\" data-listid=\"1\" data-list-defn-props=\"{&quot;335552541&quot;:1,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;\u25cf&quot;,&quot;469777815&quot;:&quot;multilevel&quot;}\" data-aria-posinset=\"4\" data-aria-level=\"1\"><span data-contrast=\"auto\">A 200% declining balance gives companies the highest depreciation deduction in the early years and is good when the company wants slightly higher depreciation deductions in early years while still spreading out the full cost across an asset\u2019s useful life.\u00a0<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/li>\n<\/ul>\n<ul>\n<li aria-setsize=\"-1\" data-leveltext=\"\u25cf\" data-font=\"\" data-listid=\"1\" data-list-defn-props=\"{&quot;335552541&quot;:1,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;\u25cf&quot;,&quot;469777815&quot;:&quot;multilevel&quot;}\" data-aria-posinset=\"5\" data-aria-level=\"1\"><span data-contrast=\"auto\">A 150% declining balance does the same thing except it gives a lower deduction in the early years and more in the later years versus a 200% declining balance.<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/li>\n<\/ul>\n<ul>\n<li aria-setsize=\"-1\" data-leveltext=\"\u25cf\" data-font=\"\" data-listid=\"1\" data-list-defn-props=\"{&quot;335552541&quot;:1,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;\u25cf&quot;,&quot;469777815&quot;:&quot;multilevel&quot;}\" data-aria-posinset=\"6\" data-aria-level=\"1\"><span data-contrast=\"auto\">Straight line is where a company deducts the same amount of depreciation each year across the life of an asset and is best when a business wants the highest profits possible in year 1 since it gives the lowest depreciation expense.<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/li>\n<\/ul>\n<p><span data-contrast=\"auto\">Not all property qualifies for all 3 options, so check the tables in <\/span><a href=\"https:\/\/www.irs.gov\/publications\/p946#en_US_2024_publink1000270861\"><span data-contrast=\"none\">IRS pub 946<\/span><\/a><span data-contrast=\"auto\"> to see which options apply to your assets. In rare cases, your business might have depreciable assets that need a different way to calculate depreciation. These will be unique to your specific business, so discuss them with a tax professional to stay compliant with the IRS.<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n<h2 aria-level=\"2\"><span data-contrast=\"auto\">Other Depreciation Methods<\/span><span data-ccp-props=\"{&quot;134245418&quot;:true,&quot;134245529&quot;:true,&quot;335559738&quot;:360,&quot;335559739&quot;:120}\">\u00a0<\/span><\/h2>\n<p><span data-contrast=\"auto\">There are other depreciation methods, but they are rarely used by small businesses and you would only choose one if you have an incredibly unique asset or business situation. Talk with your tax professional if you think any of these apply to you because they require explicit documentation with the IRS to stay compliant:<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n<ul>\n<li aria-setsize=\"-1\" data-leveltext=\"\u25cf\" data-font=\"\" data-listid=\"7\" data-list-defn-props=\"{&quot;335552541&quot;:1,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;\u25cf&quot;,&quot;469777815&quot;:&quot;multilevel&quot;}\" data-aria-posinset=\"1\" data-aria-level=\"1\"><span data-contrast=\"auto\">Units of production depreciation is where you would estimate the useful life of equipment by the amount of product it can produce instead of the number of years. You have to justify the decision to the IRS, and it\u2019s usually reserved for equipment that is rarely used. This could be a special kind of timber saw that degrades with each 1,000 cuts it makes.<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/li>\n<\/ul>\n<ul>\n<li aria-setsize=\"-1\" data-leveltext=\"\u25cf\" data-font=\"\" data-listid=\"7\" data-list-defn-props=\"{&quot;335552541&quot;:1,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;\u25cf&quot;,&quot;469777815&quot;:&quot;multilevel&quot;}\" data-aria-posinset=\"2\" data-aria-level=\"1\"><span data-contrast=\"auto\">The income-forecast method is used for intangible assets in the list below. Since each asset is unique, talk to your tax professional about how to forecast income over the next 10 years and apply it to depreciation:<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/li>\n<\/ul>\n<ul>\n<li aria-setsize=\"-1\" data-leveltext=\"\u25cb\" data-font=\"\" data-listid=\"7\" data-list-defn-props=\"{&quot;335552541&quot;:1,&quot;335559685&quot;:1440,&quot;335559991&quot;:360,&quot;469769242&quot;:[9675],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;\u25cb&quot;,&quot;469777815&quot;:&quot;multilevel&quot;}\" data-aria-posinset=\"1\" data-aria-level=\"2\"><span data-contrast=\"auto\">Motion picture films or videotapes<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/li>\n<\/ul>\n<ul>\n<li aria-setsize=\"-1\" data-leveltext=\"\u25cb\" data-font=\"\" data-listid=\"7\" data-list-defn-props=\"{&quot;335552541&quot;:1,&quot;335559685&quot;:1440,&quot;335559991&quot;:360,&quot;469769242&quot;:[9675],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;\u25cb&quot;,&quot;469777815&quot;:&quot;multilevel&quot;}\" data-aria-posinset=\"2\" data-aria-level=\"2\"><span data-contrast=\"auto\">Sound recordings<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/li>\n<\/ul>\n<ul>\n<li aria-setsize=\"-1\" data-leveltext=\"\u25cb\" data-font=\"\" data-listid=\"7\" data-list-defn-props=\"{&quot;335552541&quot;:1,&quot;335559685&quot;:1440,&quot;335559991&quot;:360,&quot;469769242&quot;:[9675],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;\u25cb&quot;,&quot;469777815&quot;:&quot;multilevel&quot;}\" data-aria-posinset=\"3\" data-aria-level=\"2\"><span data-contrast=\"auto\">Copyrights<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/li>\n<\/ul>\n<ul>\n<li aria-setsize=\"-1\" data-leveltext=\"\u25cb\" data-font=\"\" data-listid=\"7\" data-list-defn-props=\"{&quot;335552541&quot;:1,&quot;335559685&quot;:1440,&quot;335559991&quot;:360,&quot;469769242&quot;:[9675],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;\u25cb&quot;,&quot;469777815&quot;:&quot;multilevel&quot;}\" data-aria-posinset=\"4\" data-aria-level=\"2\"><span data-contrast=\"auto\">Books<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/li>\n<\/ul>\n<ul>\n<li aria-setsize=\"-1\" data-leveltext=\"\u25cb\" data-font=\"\" data-listid=\"7\" data-list-defn-props=\"{&quot;335552541&quot;:1,&quot;335559685&quot;:1440,&quot;335559991&quot;:360,&quot;469769242&quot;:[9675],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;\u25cb&quot;,&quot;469777815&quot;:&quot;multilevel&quot;}\" data-aria-posinset=\"5\" data-aria-level=\"2\"><span data-contrast=\"auto\">Patents<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/li>\n<\/ul>\n<ul>\n<li aria-setsize=\"-1\" data-leveltext=\"\u25cf\" data-font=\"\" data-listid=\"7\" data-list-defn-props=\"{&quot;335552541&quot;:1,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;\u25cf&quot;,&quot;469777815&quot;:&quot;multilevel&quot;}\" data-aria-posinset=\"3\" data-aria-level=\"1\"><span data-contrast=\"auto\">Sum-of-the-Years&#8217; Digits depreciation is not allowed by the IRS for tax reasons and is used by companies that must report separate financial statements using Generally Accepted Accounting Principles (GAAP) in addition to their tax filings with the IRS.<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/li>\n<\/ul>\n<p><span data-contrast=\"auto\">The right depreciation method for your small business depends on your objectives, which assets you purchased this year, and your financial situation. 100% bonus depreciation will be best for most companies\u2019 capital expenditures when they want the biggest deduction for the most cash flow and tax savings. Other companies will prefer straight line under MACRS when the goal is to keep depreciation expenses low and keep profits high.\u00a0 Talk with your tax professional about the right combination of methods based on all the assets you purchased this year and what your long-term tax strategy is.<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n<p><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n<p><i><span data-contrast=\"none\">National Funding does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only. You should consult your own tax, legal and accounting advisors.<\/span><\/i><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;335559738&quot;:195,&quot;335559739&quot;:195}\">\u00a0<\/span><\/p>\n<p><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>As a small business owner, you have the ability to depreciate assets differently depending on your financial situation and business goals based on IRS publication 946 as some may give you more cash flow now and others provide it over multiple years. Two examples of this are 100% bonus and straight line depreciation.\u00a0 100% bonus<a class=\"excerpt-read-more\" href=\"https:\/\/www.nationalfunding.com\/blog\/choosing-a-smb-depreciation-method-for-your-goals\/\" title=\"ReadChoosing a SMB Depreciation Method for Your Goals\u00a0\">&#8230; Read more &raquo;<\/a><\/p>\n","protected":false},"author":38,"featured_media":208572,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[42],"tags":[],"class_list":["post-208571","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-managing-your-business"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v25.8 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Choosing a SMB Depreciation Method for Your Goals\u00a0 - The Bottom Line by National Funding<\/title>\n<meta name=\"description\" content=\"This guide helps you match depreciation methods to your business goal whether it\u2019s higher cash flow with lower taxes now or spreading it out over time.\u00a0\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.nationalfunding.com\/blog\/choosing-a-smb-depreciation-method-for-your-goals\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Choosing a SMB Depreciation Method for Your Goals\u00a0 - 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