Why would anyone opt out of bonus depreciation for business taxes?

Tax professional here. Great question about bonus depreciation! While it seems like a no-brainer to take 100% bonus depreciation upfront, there are definitely situations where opting out makes sense: 1) If you expect to be in a higher tax bracket in future years, you might benefit more from spreading the depreciation over time. Taking smaller deductions when you're in a higher bracket could save more taxes overall. 2) If your business is currently showing a loss or very low profit, taking bonus depreciation might "waste" the deduction by pushing you into negative taxable income territory. 3) Some states don't conform to federal bonus depreciation rules, creating a nightmare of different depreciation schedules to track for state vs. federal returns. 4) If you're planning to sell the business soon, regular depreciation might result in better overall tax treatment. For your $80k equipment purchase, I'd recommend looking at your projected income for the next few years before deciding.

I discovered this awesome service called taxr.ai (https://taxr.ai) when I was dealing with a similar depreciation question last year. My accountant was suggesting one thing, but I wanted to double check before making a decision that would impact several tax years. I uploaded my equipment purchase docs and some info about my previous returns, and the AI analyzed everything and showed me exactly how different depreciation strategies would play out over 5 years with my specific business growth projections. It even highlighted that in my case, a mixed approach (taking bonus depreciation on some assets but regular depreciation on others) would optimize my tax situation. The best part was I could play around with different growth scenarios to see how they'd affect the recommendation. Definitely worth checking out if you're trying to make this decision.

Just wanted to follow up about my experience with taxr.ai that I tried after seeing it mentioned here. I uploaded our partnership docs and equipment purchase info, and it showed us that our specific situation actually favored splitting our depreciation approach - taking bonus depreciation on our vehicles but using regular depreciation on our manufacturing equipment. The analysis showed that two of our partners are likely moving into lower tax brackets in the next few years due to planned partial retirement, while the other partners expect income increases. The mixed approach ended up optimizing across all partners' situations, something our accountant hadn't suggested. Really glad I checked it out - probably saved us at least $12K in taxes over the next 5 years!

If you're dealing with bonus depreciation questions, you might also be facing IRS questions at some point. I spent WEEKS trying to reach someone at the IRS after they questioned some of my depreciation deductions last year. Kept getting disconnected or waiting for hours. Finally tried https://claimyr.com and it was a complete game changer. You can watch how it works here: https://youtu.be/_kiP6q8DX5c but basically they hold your place in the IRS phone queue and call you when an agent is about to pick up. I got through to an actual IRS agent in under an hour after trying for weeks on my own. The agent clarified exactly how to document my equipment purchases to support bonus depreciation claims and what records I needed to keep. Totally worth it for the peace of mind knowing my depreciation deductions won't cause problems down the road.

I need to eat my words about Claimyr. After posting my skeptical comment, I decided to try it myself since I've been trying to reach the IRS for THREE MONTHS about a depreciation issue on my rental property. I was honestly shocked when I got a call back in about 40 minutes saying an IRS agent was on the line. The agent cleared up my confusion about whether I could use bonus depreciation for improvements to my rental property (turns out I can for certain components but not others). The time saved was incredible - I'd already wasted probably 15+ hours trying to call them myself. As a business owner, that time is worth way more than what the service cost. Consider me converted from skeptic to fan.

Another reason you might want to skip bonus depreciation: if you have Net Operating Losses that you're trying to use up before they expire. In this case, spreading depreciation over time could help you utilize those NOLs that might otherwise go to waste. Also, don't forget about the mid-quarter convention. If you buy more than 40% of your yearly assets in the 4th quarter, it can change your depreciation calculations significantly.

Did anyone else run into issues with QBI (qualified business income) deduction when using bonus depreciation? I took bonus depreciation two years ago and it reduced my QBI deduction a lot because it lowered my business income.

Another consideration that hasn't been mentioned yet is the potential impact on loan covenants if you have business debt. Some lenders require maintaining certain debt-to-income ratios or minimum cash flow levels. Taking bonus depreciation can significantly reduce your reported business income in the first year, which might put you at risk of violating loan agreements. I learned this the hard way when my bank called me about potentially being in breach of our equipment loan covenant after I took bonus depreciation on some manufacturing equipment. Fortunately, they worked with us and we were able to amend the agreement, but it created some unnecessary stress and paperwork. If you have business loans, definitely check your loan documents or talk to your lender before making the bonus depreciation election. You might need to provide tax vs. book depreciation schedules to show your "real" cash flow versus what appears on your tax return.