Is section 179 right for your business?

Every business is unique—and so are its tax needs. Each year brings different financial outcomes: one year might yield a large profit, another might break even, and some years may even result in losses. Because of this variability, it’s important to approach each tax year based on current-year financials rather than applying a uniform strategy year after year.

That said, when it comes to acquiring fixed assets, many tax firms tend to take the same blanket approach: maximize current-year depreciation by applying Section 179 to every eligible asset placed in service. However, this strategy may not be optimal if your business is operating at a loss or barely breaking even. In such cases, the benefit of taking Section 179 diminishes due to loss limitations. A more thoughtful approach might be to stretch depreciation over several years, allowing you to reduce tax liability over time and better match expenses with income.

Consider this example:
Suppose your pass-through startup earns a $10,000 profit before depreciation, and you place $50,000 worth of office equipment into service. If you take the full Section 179 deduction, your profit becomes a $40,000 loss. While that eliminates your federal tax liability for the current year, the resulting $40,000 loss passes through to your individual return. But will you actually be able to use the full benefit of that loss? In many cases, the answer is no—due to limitations such as passive activity rules or insufficient income to offset.

Alternatively, if you depreciate the equipment over five years using straight-line depreciation, you’d deduct $10,000 this year—just enough to offset your $10,000 profit. Your business still owes no federal taxes for the current year, and you preserve $40,000 in basis for future deductions: $10,000 per year for the next four years. This may offer a more consistent and usable tax benefit over time.

We apply this same logic when evaluating whether to reclassify eligible capital assets as de minimis expenses. If we determine that doing so is not in your best interest, we’ll discuss it during your tax planning meetings to ensure you have the clearest strategy going forward.