The Tax Decision That's Quietly Killing Your Business Value

I've met with hundreds of business owners who are starting to think about their exit. It may be 5 years out. It may be 10. They may not even know yet, but they want to have a sense of what they've built and what their business is worth.

Here's what shocks almost all of them.

When we take a look at their financials, their cash flow, their profit margins, all the things that are going to matter when a buyer wants to determine what they're going to pay for a business, there's almost always money leaking out. Not because they've made any bad decisions. Just because they've done things the "standard way" when there was a better way to do them.

One of the biggest leaks is taxes.

In particular, depreciating vehicle and equipment purchases over 5 years when they could have taken the entire deduction in year 1. I'll ask about it. They'll tell me, "My accountant just handled it the standard way."

The standard way. That phrase may have cost business owners more money than any other phrase in the English language.

Why This Matters for Your Exit Value

When you're running a business, taxes aren't just a cost. They're a choice. And every choice either adds to the value of your business or takes away from it.

If you buy an $80,000 SUV for your business, that's a legitimate business expense.

If you depreciate it the "standard way" over 5 years, you'll write off about $16,000 per year. Assuming a 35% tax rate, that will save you about $5,600 per year in taxes.

But if you understand something called Section 179 and bonus depreciation, you could write off that entire $80,000 in the current year. At the same tax rate, that would put $28,000 back in your pocket. Not over 5 years. Right now.

That's a difference of $22,400 in year 1 cash flow.

What could you do with an extra $22,400? Would you hire another person? Buy more inventory? Invest in new equipment? Any of those choices would make your business stronger, more profitable, and more valuable.

And when it comes time to sell, buyers will look at your cash flow. A business that's taking advantage of every legal tax deduction they can looks better than one that's doing things "the standard way."

What Section 179 Actually Does

Here's what you need to understand without all the IRS mumbo-jumbo.

When you buy equipment for your business -- that could be vehicles, machinery, computers, etc. -- you typically depreciate that purchase over several years. That's helpful, but it doesn't help your cash flow when you need it most.

Section 179 allows you to skip all that. Instead, you can deduct the full amount of your equipment purchases in the year you make them. That's it.

As of 2025, you can deduct up to $2.5 million in purchases. For most business owners, that means they can write off 100% of their equipment purchases in year 1.

The 2025 Changes That Made This Better

The One Big Beautiful Bill Act became law on July 4th and made Section 179 even more powerful.

The limit on deductions doubled from $1.25 million to $2.5 million.

Bonus depreciation returned to 100% -- in 2024, it was only 60%.

Essentially, you can write off your entire equipment purchase in year 1. The tax code is practically begging you to invest in your business.

Why Vehicle Purchases Matter

Vehicles are one of the single biggest purchases most business owners will make. And they're also one of the most mismanaged from a tax standpoint.

The IRS has special rules about vehicles based on their weight. In particular, they look at something called the Gross Vehicle Weight Rating (GVWR). That's the maximum weight the vehicle can weigh when it's fully loaded, as assigned by the manufacturer.

There are different rules depending on the GVWR of the vehicle:

Less than 6,000 pounds GVWR: Your maximum deduction in the first year is $20,200.

Over 6,000 pounds GVWR: Your maximum Section 179 deduction in the first year is $31,300. You can also claim bonus depreciation on the rest.

The important caveat here is that this only applies to trucks and vans. SUVs are subject to the lower limit, even if they're over 6,000 pounds GVWR.

If you buy a truck or van that's over 6,000 pounds GVWR, there is no limit on how much of the purchase price you can deduct in the first year.

That creates an $11,100 spread based solely on the weight of the vehicle you buy. When you're evaluating vehicles, this is something you need to consider.

The easiest way to check the GVWR is to look at the sticker on the inside of the driver-side door. Don't rely on the curb weight or ask the salesperson. They typically won't know.

Real Numbers

Let's go back to that $80,000 SUV example.

You buy a brand-new 2025 Chevy Tahoe for $82,000. You use it 100% for business.

If you follow the standard depreciation rules, you'd write off about $16,400 per year for 5 years.

If you use the Section 179 method, you could write off the entire $82,000 in year 1.

At a 35% tax rate, that means the "standard way" saves you $5,700 in taxes per year.

The Section 179 way saves you $28,700 in year 1.

That's a difference of $23,000 in year 1 cash flow.

Here's the part that usually grabs business owners' attention: You can finance the vehicle and still deduct the full amount. The IRS doesn't care when you pay off the vehicle. They care when you put it into service.

So you could put $15,000 down, make $10,000 in payments by the end of the year, and deduct the full $82,000. That means your tax savings will actually exceed the amount of cash you actually laid out.

The Mistakes That Cost Real Money

Not understanding the difference between weight ratings. Again, GVWR is not the same thing as curb weight. A vehicle with a 5,500-pound curb weight could have a 6,500-pound GVWR. That would be worth an extra $11,100 in deductions.

Sloppy record-keeping. If you can't prove that you used the vehicle for business in an audit, you'll lose the deduction. Keep a mileage log. Document every business trip you take.

Trying to deduct more than you earned. Section 179 deductions can't exceed your business's net taxable income. If you made $100,000 and you're trying to deduct $150,000, that's not going to work. You can carry the excess forward, but you won't get the benefit in the current year.

Missing the deadline. December 31st is a hard deadline. You have to purchase the vehicle and put it into service by the end of the year. If the vehicle is delivered on January 1st, that will be a 2026 deduction.

Ignoring your state's rules. Not every state follows the federal Section 179 rules. California, for example, has historically had a lower cap on deductions. You need to understand your state's rules.

What Smart Business Owners Do

They think about the timing of purchases strategically. If it's a particularly good year and they have a lot of profits, they'll try to accelerate equipment purchases to offset their income. In a tight year, they'll hold off until the next year when they'll have more profits to offset the deduction.

They work with professionals. A good CPA who understands how to take advantage of Section 179 will save you many times their cost in tax dollars.

They think long-term. Every dollar they save in taxes is a dollar that stays in the business. Over time, that money compounds, funds growth, builds equity, and increases the value of the business.

The Bigger Picture

Tax strategy is just one part of building a valuable business. But it's one that most business owners ignore.

Every decision you make as a business owner either adds to the value of your business or takes away from it. Overpaying your taxes because you didn't understand Section 179 is money that's leaking out of your business. Every year.

Business owners who end up with the best exits understand that. They treat their business like the asset it is. They take advantage of every opportunity.

Section 179 isn't a "loophole." It's a part of the tax code. One that the government just doubled because they want businesses to use it. The only question is whether you will.

Know What You're Building Toward

Whether you're going to exit your business next year or 10 years from now, decisions like this matter. Tax strategy matters. Cash flow optimization matters. Operational efficiency matters. It all adds up. It all impacts the value of your business.

That's what we do here at Your Exit Value. We help business owners understand what their business is actually worth, what drives that value, and how to maximize it -- whether they're building their business for the long haul or getting ready to sell.

If you're curious where you stand, take a few minutes and find out. No pressure. No obligation. Just clarity on the number that matters most. 7 day free trial for YourExitValue.com.