Bonus Depreciation and Estate Planning Exemption Have Key Impacts

Key takeaways:
  • Restoration of 100% bonus depreciation has incentivized business owners to increase capital spending plans.
  • New permanent $15 million federal estate tax exemption makes an estate plan review essential for business owners.
  • Business owners need to understand how less well-known provisions of OBBB impact their companies and workers, including deductions for overtime work and tip income.

 

In the wake of the One Big Beautiful Bill (OBBB), the massive tax legislation enacted in July 2025, some business owners are changing their capital spending plans for this year to take advantage of the restoration of 100% bonus depreciation, which is retroactive to January. Bonus depreciation is the most significant example of how the OBBB has changed tax planning for American business owners.

The now-permanent bonus depreciation, together with higher dollar limits for Sec. 179 expensing, is the most impactful change that the OBBB brought to the tax code in terms of American business. Before the OBBB, the allowable amount of bonus depreciation was declining by 20 percentage points per year, on its way to expiring in 2027. It was down to 40% before passage of OBBB, so the retroactive restoration provided a gift to businesses that had already made or planned capital expenditures for this year with the expectation that their bonus depreciation would be much lower.

Beyond the immediate tax savings that restoration of bonus depreciation and the higher dollar limits on Sec. 179 expensing provide, these changes in the tax code also provide greater flexibility in tax planning for business owners.

For instance, if a business is operating at a loss, the owner may be able to use bonus depreciation from a capital purchase to offset income from a profitable entity. Bonus depreciation is more flexible than Sec. 179 because it doesn’t impose a strict usage percentage requirement, making it suitable for mixed-use assets. Moreover, bonus depreciation can be applied to all assets within an asset class life, providing potentially greater overall deductions.

Key to understanding the tax planning strength that bonus depreciation provides is knowing that bonus depreciation can be applied whether you have a profit or loss. To utilize Sec. 179, which also allows a company to deduct 100% of the cost of new equipment, there must be business income to offset the deduction.

While the bonus depreciation and Sec. 179 changes are the most impactful change in the OBBB, they are not a startling change. The phaseout of bonus depreciation has been a hot topic for several years as the tax benefit was winding down.

But one other change brought about by OBBB is as significant for business owners, but in a different way.

Federal Estate Tax Exemption

The OBBB set the federal estate tax exemption at $15 million, indexed for inflation, and made it permanent. This has had a significant impact on long-range tax planning for business owners, and has compelled many to review their estate plans and make changes that reflect the continuity that the permanent exemption has brought about. Similar to bonus depreciation, the current estate tax exemption of $13.9 million was scheduled to be cut in half at the end of this year.

What Should Business Owners Do Now?

While the new permanent exemption is a positive, estate plans are being buffeted by inflation, with particular impact on owners of small and medium-sized businesses. So, even if you updated your estate plan within the past two years, it may be a good idea to review it again and discuss with an advisor whether changes are advisable.

Other actions business owners can take now include:

  • Be aware of the timing and planning around significant business purchases. The timing matters a lot now that bonus depreciation and the higher limits on Sec. 179 deductions are in place. Meet with your advisor to discuss any purchase of large, expensive equipment. Should you buy the equipment this year, or spread the purchase out over a couple of years? Careful tax planning can help you maximize the tax benefits that may be available.
  • The OBBB’s treatment of tax deductions for employee overtime and tip income means your payroll provider may need to provide clearer, more detailed information to your workers. Now is the time to make sure the reporting structure is set up.
  • Now that the administration’s tariffs are in force, business owners should consult with advisors and run projections to determine how their profitability may be impacted. If you import components or products for resale, the tariffs will probably affect your profitability. Proper tax planning can help you avoid any significant negative impacts.
  • The stock market is strong right now, which is a reminder to make sure your company’s 401(k) plan is updated. Is it taking advantage of the right investments? Consider engaging a benefit plan advisor to review your plan and give you an objective evaluation of how it can be strengthened. If you don’t have a 401(k) plan, now is the time to create one. Recently enacted laws provide incentives for companies to create new retirement plans for their employees. Retirement plans are important recruiting and employee retention tools, so any costs you may incur will likely be offset by the stability a plan may bring to your workforce.

Questions?

With passage of the OBBB and the new permanence of important tax incentives, tax planning is more important than ever for business owners. Contact an Adams Brown advisor for a discussion about your business and personal tax planning.