Tax Deductions For Business Expenses

Build it, Deduct it!   On July 4th, the U.S. passed OBBBA, a sweeping tax reform package that delivers a windfall for companies who invest in innovation and infrastructure. It’s simple: more R&D + more CapEx = more free cash flow. Here’s why:   OBBBA reinstates 100% immediate expensing for U.S.-based R&D. No more amortizing over 5 years. If you’re building the next breakthrough in AI or life sciences, your tax deduction is instant. That means lower taxes this year, not in 2029. On the CapEx side, OBBBA brings back full bonus depreciation for qualified property, including everything from machinery, data center infrastructure, chip fabs, and corporate jets.   Buy it. Build it. Deduct it.   This bill serves to accelerate free cash flow, which will be a powerful tailwind for growth-oriented companies that reinvest heavily in their businesses. Companies that rely on R&D for product development (technology, biotech), building critical infrastructure (semis, energy, manufacturing, commercial property), or deploy heavy equipment (railroads, ship builders, farm equipment) benefit from this full write-off in year 1. For many companies this will result in a spike in free cash flow which should help drive valuations.   OBBBA also includes retroactive "catch-up" deductions for previously capitalized R&D from 2022–2024, which is a gift as refund checks for companies that have been carrying deferred tax assets is off-set this tax year. This policy rewards domestic innovation and encourages onshoring for strategic industries.   Asset Based Lending will also benefit since hard assets valuations will experience a step-function higher and U.S. taxpayers will see this flow through on their K-1s. At Marathon Asset Management, we are witnessing firsthand the demand to finance many of these hard mission-critical assets. 

Why wait years to write off equipment when you can expense millions today? If you’re running a business, cash flow is everything. Waiting years to write off equipment or software isn’t just frustrating, it slows growth. That’s why Section 179 has always been powerful. What Changed in 2025: Section 179 expensing limit is now $𝟮.𝟱 𝗺𝗶𝗹𝗹𝗶𝗼𝗻 𝗽𝗲𝗿 𝘆𝗲𝗮𝗿, the highest ever. That means small and midsize businesses can immediately deduct the cost of new equipment, office tech, vehicles (that qualify), and even software. Why It Matters: 1. 𝗙𝗿𝗼𝗻𝘁-𝗹𝗼𝗮𝗱 𝘀𝗮𝘃𝗶𝗻𝗴𝘀 If your income is strong this year or rates are expected to rise, taking the full deduction now maximizes your tax break. 2. 𝗕𝗼𝗼𝘀𝘁 𝗰𝗮𝘀𝗵 𝗳𝗹𝗼𝘄 Immediate expensing frees up working capital you can reinvest into hiring, scaling, or new technology. 3. 𝗦𝗺𝗮𝗹𝗹 𝗯𝘂𝘀𝗶𝗻𝗲𝘀𝘀 𝗮𝗱𝘃𝗮𝗻𝘁𝗮𝗴𝗲 The higher cap is especially valuable for businesses that need large equipment upgrades but couldn’t fully expense them before. 4. 𝗦𝘁𝗿𝗮𝘁𝗲𝗴𝗶𝗰 𝗺𝗶𝘅 You can combine Section 179 with bonus depreciation (also permanent under the OBBBA) for even more powerful tax planning.     Key Things to Remember: • The property must be placed in service this year, not just purchased. • Section 179 cannot exceed taxable business income (excess carries forward). • States don’t always follow federal rules, so check your state conformity. • If you stop using the property mostly for business, some deduction may be recaptured.    📌 Before making major purchases, coordinate with your CPA to maximize the deduction and avoid surprises.

R&D Costs Are Back to Full Deduction in 2025: No More Amortization Starting in 2025, you can finally stop stretching your R&D deductions over 5 or 15 years. Thanks to new legislation, domestic R&D expenses will once again be fully deductible in the year they’re incurred. That means: 🔵 Software development? 🔵 Engineering and prototyping? 🔵 Process improvement and testing? All of it can now hit your books immediately - no more waiting years to realize the benefit. This is a big win for companies who’ve been stuck cash flowing their innovation. If you’ve been hesitant to ramp up R&D spend because of amortization rules, 2025 is your green light. More upfront savings means more capital to reinvest in your team, tech, or growth. For CFOs, controllers, and founders this is the time to revisit your tax strategy. And if you’re already claiming the R&D credit, this pairs perfectly for a bigger bottom-line boost. One caveat: timing matters. Projects straddling 2024 and 2025 might need extra planning to maximize deductions. But overall? This is the R&D win the innovation economy’s been waiting for. Are you ready to write it all off? #TaxStrategy #RDcredit #EngineeringFinance

Whether you love it or hate, the One Big Beautiful Bill Act has some important positive rule changes for SBIR/STTR companies. Immediate Expensing of U.S. R&D (Section 174 Rule Fixed): Under the revised Section 174A rules, domestic research costs are now again fully deductible. The new law also provides a retroactive fix for most small businesses. Eligible small business with capitalized domestic R&D expenses from 2022–2024 may elect a catch-up deduction, or they can choose to retroactively apply full expensing to tax years beginning after 2021, enabling them to amend previous returns and recover costs that were previously amortized. Congress has known the expensing of R&D is a real problem, now they have finally fixed the problem. This is a big win as the requirement to capitalize R&D was a real killer for early-stage SBIR/STTR companies. Also a big win for the accounting industry as they will now get paid to file three years of amended returns. Qualified small business stock (QSBS): The new law has enhanced the tax benefits associated with qualified small business stock (QSBS), which should make venture capital a more attractive asset class for investors. A tiered gain exclusion is established for QSBS: 50% exclusion applies to shares held for more than three years, 75% exclusion to shares held for more than four years, and 100% exclusion to shares held for more than five years. The per-issuer dollar cap is increased from $10 million to $15 million, with adjustments for inflation beginning in 2027. Other additional pro business changes include: -Reinstatement of 100% first-year “bonus depreciation," an increase in the Section 179 deduction cap to $2.5 million, and the addition of a 100% depreciation allowance for certain commercial real property. -The law permanently establishes the Section 199A qualified business income deduction, maintaining the current deduction rate of 20%. Furthermore, the bill extends the phase-in threshold for limitations from $50,000 to $75,000 for single filers, and from $100,000 to $150,000 for those filing jointly. #sbir #startups #vc 

On my top 5 from the OBBBA. Section 179. Starting in 2025, the Section 179 limit jumps from $1 million to $2.5 million (that’s the base tax code amount, not the inflation adjusted figure). The phaseout threshold increases from $2.5 million to $4 million. It’s a big jump, and one that could make a real difference for a lot of businesses. Take a dental group investing $2.3 million in new equipment. Before, they could only expense about half of that right away. Now, they can write off the full $2.3 million in year one, assuming they have enough taxable income. That’s a massive upfront tax savings. But here’s the real kicker: Many states don’t conform to federal bonus depreciation rules, but they do conform to Section 179. So if you’re in a high-tax state like California or New York, this could save you a lot on your state business taxes too. If you or your clients are planning big equipment or property investments in 2025, it’s worth modeling out the numbers. This one could be a big deal. 100% bonus depreciation is the word on the street right now, but Section 179 can be just as powerful, especially when it comes to profitable businesses with state tax exposure. #Section179 #TaxPlanning #StateTaxes #OBBBA #BusinessTax #CapitalInvestments #AccountingStrategy

The One Big Beautiful Bill just reversed Section 174 — one of the most damaging tax changes for R&D-heavy companies. The Tax Cuts and Jobs Act of 2017 required companies to capitalize and amortize R&D expenses over 5 years for domestic R&D and 15 years for foreign R&D, starting in tax year 2022. This disproportionately affected tech companies, whose primary expenses are related to building and innovation (i.e., R&D). Even unprofitable companies could face tax bills due to having to amortize R&D expenses over time rather than deducting them immediately. Under the One Big Beautiful Bill (for stock acquired after July 4, 2025): → Domestic R&D can be expensed immediately. → Software development is explicitly included as qualifying R&D. → Small businesses (with average annual gross receipts of $31 million or less) can retroactively apply the new rules to tax years 2022–2024 and reclaim deductions for R&D expenses that were previously amortized. Startups should begin to see a reduced tax burden — exactly when capital is most critical. R&D-intensive businesses shouldn’t be penalized for investing in innovation.

If you're not leveraging these tax strategies, you're leaving money on the table. Here are 7 that you need to look into: #1 - Home Office Deduction - Deduct $5 per sq ft (up to 300 sq ft) - Must be EXCLUSIVELY for business - Take photos as proof – the IRS loves to scrutinize this And if you store inventory at home? You can deduct that space WITHOUT the strict exclusive use test. Requirements: - You sell products at wholesale or retail - Your home is the only fixed business location - You use the space regularly #2 - Toolkit Deductions Every tool you use is a potential deduction: - Internet and cell phone (pro-rated for business use) - Video conferencing services - Website hosting and domain fees - Plugins, apps, and software - Online services (QuickBooks, Zapier, etc.) #3 - Travel Like a Boss, Deduct Like a Pro - $0.67 per mile for business travel (2024) - 50% of meals and entertainment (keep those receipts!) - 100% of lodging for overnight business trips #4 - The Contractor Advantage Hired freelancers? Deduct their fees, but beware: - Collect W-9 forms - Issue 1099-NECs for payments over $600 - Don't misclassify employees as contractors (IRS red flag) #5 - Startup Costs (First-Year Goldmine) - Deduct up to $5,000 in startup costs - Another $5,000 for organizational costs (Includes market research, advertising, legal fees) #6 - The QBI Deduction (Your 20% Ace in the Hole) You qualify for a 20% deduction on your business income if: - You have a pass-through business - Meet certain income thresholds #7 - The Retirement Plan Power Play Solo 401(k) strategy: - Contribute up to 25% of income, max $66k (2024) - Reduce taxable income dollar-for-dollar - Go Roth for tax-free growth Real-world example: Sarah, 28, in eCom, made $150k in 2022. She maxed out her Solo 401(k) with $37,500. This cut her taxable income by 25% and set up a tax-free growth machine. And if Sarah invests that $37,500 annually for 30 years with an 8% return, she'll have over $4 million – potentially all tax-free if she took advantage of a Roth IRA! Smart tax planning isn't just about saving money today. It's about building a financial fortress for your future.

How you can turn everyday expenses into tax savings? (If you’re a small business owner, read this) I spent 24 hours testing how much of my life I could legally write off. Here’s what happened. When I started, I made one rule: - Spend money ONLY if it qualifies as a deduction. - Eat ONLY if it’s deductible. - Travel ONLY if it’s deductible. Sounds simple, right? But it wasn’t. → The IRS has strict rules: Ordinary: Common in your line of work. Necessary: Essential for business operations. Here’s what I learned. My home office. I worked from my second room, which doubles as my office. - That space qualifies as a tax-deductible expense. My commute. I traveled 4.4 miles to a co-working space for a meeting. - Deduction: $2.94 (4.4 miles × $0.67/mile). → Fun fact: Driving 10 miles/day = $2,445/year in tax deductions. My workspace. At the co-working space, I paid $500/month. What did I get? - Meeting rooms. - Networking opportunities. - A gym. ↳ Fully deductible as a business expense. My lunch. I had lunch with a business partner. - Cost: $50.70. - Deduction: $25.35 (50% under IRS meal rules). My tools. I rely on tools to keep my business running: - MacBook Pro: 100% deductible under IRS Section 179. - Phone: Deductible for business use. - Accessories: Mouse, work glasses, monitor. → Pro Tip: Year-end purchases reduce your tax liability. When you run a business, many costs can work in your favor: - The tools you use. - The meals you enjoy. - The spaces you work in. You just need to know how to optimize. I hope this helps you in 2025. Repost to help others ♻️

Section 174 is no more. What changed, and why should you care? Normally, a business is able to deduct all of its business expenses. So if your business has $1m in revenue and has $2m in expenses, your business is unprofitable (it has a loss of $1m a year) and it doesn't owe any income tax. But in 2017, Congress said "You know what, starting in 2022, we're going to change that: for R&D expenses, you won't be able to claim all the expenses in the year they incurred—you'll have to spread them out over five years." After that changed, the IRS's view of our example above became:  • You had revenues of $1m. But you only had $400k in expenses (because you now have to spread that $2m in R&D expense over 5 years).  • So actually you had a profit of $600k! And you owe tax on that $600k profit (~$120k)  • So you now have an additional $120k tax expense, making your business even more cash-flow negative. Amusingly, if you're pre-revenue, none of this matters (you have no income at all, so it doesn't matter what your expenses are.) You were hardest hit by this change when you have some revenue and when you have a lot of R&D expense. The good news: this change is no more. From 2025 onwards, we're essentially back to the old regime, for domestic R&D. (You need to amortize foreign R&D over 15 years.) If you had revenue last year and also had a lot of R&D expense, you should check in with your tax preparer about what you should do. (Depending on the numbers involved, you could either do nothing, amend the return, or claim the rest of the deduction in 2025.)