Quick overview

Federal tax law changes since 2017 — most notably the Tax Cuts and Jobs Act (TCJA), COVID-19 relief legislation, and follow-up rules — have reshaped many deductions small businesses rely on. Key areas affected include depreciation and expensing (Section 179 and bonus depreciation), business meal deductibility, home office rules, net operating losses (NOLs), and research expense treatment. These changes affect timing and the amount of deductions you can claim; properly timing purchases and organizing records often produces the largest tax benefit.

Major changes to watch and how they affect deductions

Below are the most consequential rule changes and practical implications.

  • Section 179 and bonus depreciation

  • What changed: The TCJA greatly expanded immediate expensing through higher Section 179 limits and introduced 100% bonus depreciation for qualifying property placed in service after Sept. 27, 2017 (with a phase-down that begins after 2022). Bonus depreciation allows a business to immediately deduct a large share of the cost of qualified property in the year it’s placed in service.

  • Practical impact: Businesses that buy equipment, software, or qualifying property can often accelerate deductions into the year of purchase, reducing current taxable income. However, bonus depreciation and Section 179 interact with taxable income limitations and may create differences in alternative minimum tax or state tax treatment.

  • Where to learn more: See our detailed guides on the Section 179 Deduction and on business depreciation basics (Section 179 Deduction and Business Depreciation Basics: Section 179 and Bonus Depreciation).

  • Bonus depreciation phase-down (timing note)

  • After the initial 100% period, the bonus depreciation percentage phases down (for property placed in service after 2022). This makes the calendar year you place assets in service one of the most important tax planning decisions for equipment-heavy businesses.

  • In my practice, moving a delivery of machinery a few weeks earlier or later into a different tax year has changed a client’s ability to fully expense an asset.

  • Meals and entertainment deductions

  • What changed: The TCJA eliminated deductions for most entertainment expenses and left certain meal deductions at 50% — but COVID-era relief temporarily allowed a 100% deduction for eligible restaurant meals in 2021 and 2022.

  • Practical impact: For 2023 and beyond, historic 50% rules generally resumed for business meals; special temporary rules are no longer universally available. Keep detailed receipts and note the business purpose for every meal.

  • Authority: IRS guidance on business meals and entertainment rules (see IRS Publication 463).

  • Home office deductibility and documentation

  • What changed: The simplified home office method (safe-harbor) has been available for years ($5 per square foot, up to 300 sq ft). Increased remote work has made accurate home-office documentation more important.

  • Practical impact: Whether you use the simplified method or actual-expense method, contemporaneous documentation (floor plans, photos, expense logs) matters if the IRS asks for proof.

  • For a step-by-step walkthrough on records, see our piece on How to Document Work-From-Home Deductions for 2025 (https://finhelp.io/glossary/how-to-document-work-from-home-deductions-for-2025/).

  • Net Operating Loss (NOL) and carryback/carryforward rules

  • What changed: TCJA limited the NOL deduction to 80% of taxable income and generally eliminated carrybacks for most taxpayers. The CARES Act temporarily relaxed these rules for NOLs arising in certain years (providing 5-year carrybacks and removing the 80% limitation for those years). Post-CARES Act filings returned to TCJA rules, so planning around loss years and possible carryforwards remains essential.

  • Practical impact: If your business incurred losses in pandemic years or has carryforwards, examine the interaction with current-year income to determine the best year to realize deductions.

  • Research and development (R&D) expense capitalization (Section 174)

  • What changed: TCJA requires R&D expenses that were historically deductible to be capitalized and amortized over a multiyear period for tax years beginning after Dec. 31, 2021, rather than being fully deductible when paid or incurred.

  • Practical impact: For startups and R&D-heavy firms, the capitalization requirement increases taxable income in early years unless legislative changes or state adjustments apply. Consider accelerating qualified expenses or using credits where eligible.

  • Authority: IRS guidance on Section 174 and related rules; consult a tax advisor for company-specific planning.

  • Qualified Business Income (QBI) deduction (Section 199A)

  • What changed: TCJA introduced the 20% pass-through deduction for certain business owners. It remains complex and income-phaseout thresholds, service trade restrictions, and W-2 wage and capital limitations all affect eligibility.

  • Practical impact: Entity choice and reasonable compensation decisions materially affect QBI. Work with your CPA to model whether S-corp election, payroll levels, or retirement-plan contributions change the deduction.

Actionable tax planning strategies (practical steps)

  1. Time major capital purchases intentionally. If you expect a higher tax rate or fuller expensing this year, accelerate qualifying purchases to the current tax year. Conversely, delay purchases if you expect losses that are more useful next year.
  2. Choose between Section 179 and bonus depreciation carefully. Section 179 allows selective expensing (you can pick and choose assets); bonus depreciation applies broadly to qualified property. Use our Section 179 guide to match strategy to business needs (https://finhelp.io/glossary/section-179-deduction/).
  3. Maintain precise meal and travel documentation. Even when meals are deductible, the IRS expects proof of business purpose and attendees. Keep contemporaneous notes and retain receipts.
  4. Document your home office. Create a file with dimensions, a layout sketch, photos, and allocated expense calculations — especially if you use actual expenses rather than the simplified method.
  5. Revisit entity classification and payroll. S-corp vs. sole proprietorship or partnership decisions can meaningfully affect payroll taxes, QBI, and deductible retirement plan contributions.
  6. Use retirement plans to lower taxable income. Employer-sponsored plans (SEP IRA, SIMPLE IRA, 401(k)) both reduce taxable income and support employee retention.
  7. Track state-level differences. State tax treatment of bonus depreciation, Section 179, and NOLs often differs from federal rules; plan on a state-by-state basis.

Recordkeeping checklist

  • Invoices and receipts with business purpose noted
  • Asset purchase orders and placement-in-service dates
  • Depreciation schedules and amortization worksheets
  • Meal receipts, attendee lists, and business purpose notes
  • Home office photos and square footage calculations
  • Payroll records showing wages and retirement contributions

Examples (illustrative)

  • Equipment purchase example: A small shop purchases a new CNC machine and places it in service this year. Depending on whether you use Section 179 or bonus depreciation, you could deduct most or all of the machine’s cost in year one rather than depreciating over many years — improving near-term cash flow.

  • Home office example: A remote consultant who uses a 200 sq ft room exclusively for client work can use the simplified method to claim up to $1,000 (200 sq ft × $5) for that tax year, or calculate actual expenses for potentially higher deductions if expenses warrant.

Common mistakes to avoid

  • Treating temporary relief as permanent: Several COVID-era provisions were time-limited. Confirm whether a relief measure still applies in the current tax year.
  • Poor documentation: Deductions stand or fall on solid records. Missing receipts or vague notes invite adjustment.
  • One-size-fits-all depreciation choices: The best expensing strategy depends on projected income, state treatment, and long-term depreciation planning.

Where to get authoritative guidance

  • IRS general guidance and publications (for example, Publication 535 and Publication 946) provide primary rules on business expenses and depreciation (see IRS.gov).
  • For the latest on Section 179 limits and annual inflation adjustments, check the IRS Section 179 page and our in-depth Section 179 guide (https://finhelp.io/glossary/section-179-deduction/).

In practice: a short advisor note

In my practice working with small businesses, the single biggest leverage point is simple planning around timing and documentation. A client who moved a large equipment purchase into the year with higher revenue used Section 179 to neutralize an otherwise large tax bill. Another client learned that claiming the simplified home office method was faster and lower audit risk than trying to allocate complex mortgage and utility costs.

Professional disclaimer

This article is educational and not a substitute for personalized tax advice. Tax rules change, and results depend on your facts and circumstances. Consult a qualified CPA or tax attorney for guidance tailored to your business.

Sources and further reading

If you’d like, we can run through a short checklist of your recent purchases and help prioritize which assets to expense or depreciate for maximum tax benefit (consulting a CPA is recommended).