Should I Buy Equipment for My Business Before Year-End? (US)

As the end of the year approaches, you might be thinking about buying equipment for your business. Maybe your laptop needs replacing, you want to upgrade your camera, or you've been considering a new piece of machinery. If you're planning to purchase it anyway, buying it before December 31 could affect your taxes.

In the United States, qualifying business equipment may be eligible for a deduction in the year it's placed in service. Depending on the type of equipment and your circumstances, you could deduct the entire eligible cost in the first year rather than spreading it over several years.

However, purchasing something just to reduce your taxes isn't necessarily a good financial decision. You still must pay for the equipment, and the deduction only reduces the amount of income subject to tax.

How Are Business Equipment Purchases Deducted?

When you purchase ordinary business supplies, those expenses are usually deductible under the usual business expense rules. Equipment that you'll use for several years is treated differently. Items such as computers, cameras, furniture, and machinery are generally seen as capital assets. Under the regular tax rules, their costs are recovered through depreciation over a period of years.

However, U.S. tax law provides options that may allow business owners to deduct qualifying equipment costs sooner, including Section 179 and bonus depreciation. There's also a simplified deduction available for certain lower-cost purchases under the IRS de minimis safe harbor rules. Which treatment applies depends on the equipment, its cost, how it's used, and the applicable tax requirements.

Section 179 and Bonus Depreciation

Section 179 allows eligible businesses to deduct the cost of qualifying equipment in the year it's placed in service, subject to certain limitations. For the 2026 tax year, the maximum Section 179 deduction is $2,560,000, with a phaseout beginning when qualifying equipment purchases exceed $4,090,000 (Rev. Proc. 2025-32). These limits are much higher than the equipment purchases most sole proprietors make.

Despite that, Section 179 is limited to your taxable income from the active conduct of trades or businesses. If your business doesn't have enough qualifying taxable income, you may not be able to use the entire deduction immediately. An unused amount may be carried forward, subject to the rules.

Bonus depreciation is another option. Under federal legislation enacted in July 2025, 100% bonus depreciation was restored for qualifying property acquired and placed in service after January 19, 2025. This means many qualifying equipment purchases made in 2026 may be eligible for a full first-year federal deduction.

Unlike Section 179, bonus depreciation isn't subject to the same business taxable-income limitation, although other tax rules can affect the result. Bonus depreciation can also create or increase a business loss. Not every purchase qualifies, and different rules may apply to vehicles, buildings, certain property improvements, and equipment acquired under earlier contracts.

How Much Tax Could You Save?

Suppose you're a freelance photographer considering a new camera that costs $5,000. You use it entirely for business, and it qualifies for a full deduction in the year of purchase.

If your assumed marginal federal income tax rate is 24%, the calculation would look like this:

Item	Amount
Camera purchase	$5,000
Eligible first-year deduction	$5,000
Assumed federal income tax rate	24%
Estimated federal income tax savings	$1,200
Cost after estimated federal income tax savings	$3,800

This is a simplified example. It assumes you can use the full deduction and excludes state income taxes, self-employment tax effects, and other tax considerations.

The point is that a $5,000 deduction doesn't mean you get $5,000 back from the IRS. In this example, you would spend $5,000 to save approximately $1,200 in federal income taxes.

If you need the camera, the deduction may help reduce the purchase's after-tax cost. If you don't need it, you're still spending $3,800 after the estimated federal income tax savings.

Does the Equipment Have to Be Purchased Before December 31?

Buying equipment before year-end isn't enough by itself. The equipment generally needs to be placed in service during the tax year for depreciation deductions to begin.

Placed in service means the equipment is ready and available for its intended business use. You don't necessarily need to have completed a job using it, but it must be ready for use in the business. For example, suppose you order a computer on December 20 and pay for it immediately, but it isn't delivered until January. You generally wouldn't be able to claim a depreciation deduction for the computer in December simply because you paid for it before year-end. If the computer was delivered and ready for business use in December, it may qualify for a deduction in that tax year.

The timing can be particularly important if you're ordering equipment that requires installation or setup. A machine delivered in December but not ready to operate until January may not qualify until the following year. For most sole proprietors filing on a calendar-year basis, December 31 is the relevant deadline. Businesses using a different tax year need to consider their own year-end.

What About Smaller Purchases?

Not every equipment purchase needs to be capitalized and depreciated.

The IRS allows businesses to elect a de minimis safe harbor for certain purchases of tangible property. For businesses without an applicable financial statement, the threshold is generally $2,500 per invoice or item, provided the requirements are met. Businesses with an applicable financial statement may qualify for a $5,000 threshold.

For instance, if you purchase a $1,500 laptop for your business, you may be able to deduct the cost under this safe harbor rather than treating it as a depreciable asset. The election has specific requirements, including how the purchase is treated in your books and records. It must also be made with your timely filed federal tax return, including extensions. The $2,500 threshold doesn't mean that every purchase above that amount must be depreciated over several years. Other deductions, including Section 179 and bonus depreciation, may still apply.

What If You Use the Equipment Personally?

Many sole proprietors use equipment for both business and personal purposes. A laptop, camera, or phone might serve both purposes, but you can't deduct the personal-use portion as a business expense. For instance, if you purchase a $2,000 laptop and use it 80% for business, the business-use portion is $1,600. Any deduction would need to be calculated using the applicable rules.

Section 179 generally requires more than 50% business use in the year the equipment is placed in service. If business use later drops to 50% or less during the recovery period, you may have to recapture part of the deduction.

Vehicles are subject to additional rules, including business-use requirements, depreciation limits for certain passenger automobiles, and restrictions that may apply to SUVs and other vehicles.

If you're considering buying a vehicle before year-end primarily for tax purposes, it's worth having the deduction calculated before making the purchase. Vehicle deductions are more complicated than the rules for many other types of equipment.

Should You Buy Equipment This Year or Next Year?

Even when equipment qualifies for a full first-year deduction, claiming it immediately isn't always the best tax strategy. If your income is high this year and you expect lower earnings next year, accelerating the deduction may reduce taxes at a higher marginal rate.

On the other hand, if your income is low this year and you expect significantly higher earnings next year, spreading deductions over future years may be worth considering. The choice between Section 179, bonus depreciation, and regular depreciation can affect when deductions are claimed. Certain elections allow you to change the treatment of qualifying property, although the rules differ depending on the deduction.

State taxes are another consideration. Not every state follows federal depreciation rules, so a purchase that qualifies for a full federal deduction may receive different treatment on your state tax return.

You should also consider your cash flow. Buying equipment reduces the money available for operating expenses, even if you finance the purchase. If you purchase equipment using a loan, you may still be able to claim depreciation deductions based on the eligible equipment cost, subject to the applicable rules. The principal portion of your loan payments isn't a separate deductible expense, while interest may be deductible if the borrowing meets the business interest requirements.

How Do You Report Equipment Purchases on Schedule C?

If you're a sole proprietor, your business income and expenses are generally reported on Schedule C as part of your federal individual income tax return. Depreciation and Section 179 deductions are generally calculated using Form 4562 when required. The resulting deductions are then reported in the appropriate place on Schedule C.

Keep your purchase invoices and records showing the cost, date the equipment was placed in service, business-use percentage, and any deductions previously claimed. If you're using Heightly to organize your business bank and credit card statements, larger purchases that may be equipment are flagged for you to confirm, so they're kept out of your regular expenses. Heightly helps categorize transactions for tax preparation, but it doesn't calculate Section 179 deductions, bonus depreciation, or regular depreciation.

You'll still need to determine the appropriate treatment for those purchases when preparing your tax return.

Should You Make the Purchase Before Year-End?

If your business needs new equipment and you're already planning to buy it, making the purchase before year-end may allow you to claim a deduction sooner. With 100% bonus depreciation available for many qualifying purchases, the first-year federal deduction could be substantial.

But the tax deduction shouldn't be the main reason you make the purchase. Consider whether the equipment will improve your business, whether you can afford it, and how much you'll actually save after accounting for your tax situation. If you're planning a large purchase, especially a vehicle or expensive machinery, reviewing the tax implications with your accountant before buying can help you avoid surprises. Buying equipment your business needs may be a good investment. Buying something you don't need simply to reduce your taxable income usually isn't.

This article discusses U.S. federal income tax rules for business equipment purchases, including the 2026 tax year. State tax treatment may differ. Section 179, bonus depreciation, and other deductions depend on the type of property, acquisition date, placed-in-service date, business use, and applicable limitations. This article provides general information and does not replace professional tax advice.