Thinking about taking 100% bonus depreciation this year? Be careful—especially if you’re operating as an S corporation.
Here’s the mistake I see over and over:
You buy $100,000 of equipment and think, “I’ll bonus-depreciate the whole thing.”
But then I ask the real question:
Did you actually put $100,000 of YOUR money into the business?
Because here’s the rule nobody tells S corp owners:
• In an LLC or sole proprietorship, taking a loan increases your basis.
• In an S corporation, debt does NOT give you basis.
Example:
• You put $1,000 down
• You finance $99,000
• You try to take a $100,000 bonus depreciation deduction
In an S corp, you don’t have the basis to claim the write-off.
Take the deduction anyway?
You’ve now created a deduction in excess of basis—and the IRS will tax you on it.
This is a HUGE trap for S corp owners.
Before you write off big purchases, make sure you understand basis rules or talk with a qualified tax advisor who actually knows them.
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