Introduction

The One Big Beautiful Bill Act (OBBBA) has permanently extended the provision allowing businesses to claim 100% bonus depreciation under Internal Revenue Code Section 168(k). This tax incentive permits the immediate expensing of qualified property, significantly accelerating depreciation deductions and providing substantial cash flow benefits.

This article examines the statutory framework of bonus depreciation, identifies qualifying property, and outlines strategic planning considerations for California small business owners seeking to optimize tax efficiency through capital investment.

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Understanding Bonus Depreciation Under Section 168(k)

Bonus depreciation enables taxpayers to deduct the full cost of qualifying property placed in service during the taxable year. Prior to OBBBA, the 100% bonus depreciation provision was subject to scheduled phase-outs. With the Act’s passage, this full expensing benefit is now permanent, although gradual reductions are anticipated in future years.

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Qualifying Property and Eligible Assets

Property eligible for 100% bonus depreciation generally includes:

• Tangible personal property with a recovery period of 20 years or less.
• Computer software and qualified improvement property.
• Certain improvements to nonresidential real property such as roofs, HVAC systems, and fire protection systems.

Vehicles and certain property subject to luxury automobile limitations may have additional constraints.

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Strategic Considerations for Timing Asset Acquisitions

Capital expenditures can be timed strategically to maximize the benefit of bonus depreciation:

• Year-end Purchases: Acquiring and placing qualifying assets in service before the end of the tax year allows for immediate expensing, accelerating deductions.
• Bundling Assets: Combining multiple smaller assets into a single purchase can optimize deduction timing.
• Avoiding Phaseouts: Early planning can help avoid reduced bonus depreciation percentages as the phase-down begins in later years.

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Cash Flow and Tax Planning Benefits

Immediate expensing reduces current taxable income, which:

• Lowers tax liabilities and improves liquidity.
• Enables reinvestment into business operations or expansion.
• Provides certainty in tax planning, supporting budgeting and financial forecasting.

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Interaction With Other Tax Provisions

Bonus depreciation coordinates with other incentives such as:

• Section 179 Expensing: Which allows for immediate expensing subject to limits and phase-outs.
• Qualified Business Income Deduction (QBID): Reduced taxable income may enhance QBID benefits.
• State Tax Considerations: California generally conforms to federal bonus depreciation but with certain adjustments.

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Potential Pitfalls and Compliance Issues

• Documentation: Proper substantiation of asset classification and placed-in-service dates is essential.
• Recapture Risks: Dispositions of depreciated assets may trigger recapture income.
• Alternative Minimum Tax (AMT): Businesses subject to AMT should evaluate impacts.

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Case Study: Strategic Equipment Purchase for Manufacturing Business

A California manufacturing firm acquired $500,000 of qualified machinery in December 2025. By placing these assets into service before year-end, the company claimed the full $500,000 deduction, resulting in a tax savings exceeding $150,000 and improved cash flow to fund additional projects.

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Conclusion

Permanent 100% bonus depreciation under OBBBA offers a powerful incentive for California businesses to accelerate capital investments and optimize tax outcomes. Thoughtful timing, asset selection, and compliance are paramount to maximize these benefits.

SMB CPA Group provides comprehensive advisory services to assist clients in leveraging bonus depreciation strategies aligned with their operational and financial objectives.

For personalized assistance, detailed feasibility analyses, and ongoing PTET election support:

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