& SAME YEAR EXPENSING SOFTWARE ACQUISITIONS LEVERAGED A PROFESSIONAL WHITE PAPER FOR FINANCIAL, TAX, AND LEGAL ADVISORS This paper is for educational purposes only. It is intended for qualified tax, accounting, and financial professionals, and should not be construed as tax, legal, or investment advice. The information provided is general in nature and may not apply to every situation. Each taxpayer’s circumstances are unique, and clients should consult their own qualified advisor before taking action. Neither the author nor their firm is responsible for the results of decisions made based on this content. By Paul Liang, CPA (California Licensed) PAUL LIANG, CPA Section 179 Expensing Intent: Congress designed §179 to encourage business investment by allowing immediate expensing of qualified property. Limits: For 2025, the deduction limit is $2.5 million, phasing out after $4 million in acquisitions. Deductions are capped by taxable income from active trade or business. Software: Off-the-shelf software qualifies, provided it is purchased (not self-developed), used in a business, and placed in service during the same tax year. Section 168(k) Bonus Depreciation Intent: Provide 100% upfront expensing for qualified property. No cap: Unlike §179, there are no income or dollar caps. Current law: The One Big Beautiful Bill Act (2025) permanently restored 100% bonus depreciation for property placed in service after January 19, 2025. Disclaimer This paper is for educational purposes only. It is intended for qualified tax, accounting, and financial professionals, and should not be construed as tax, legal, or investment advice. The information provided is general in nature and may not apply to every situation. Each taxpayer’s circumstances are unique, and clients should consult their own qualified advisor before taking action. Neither the author nor their firm is responsible for the results of decisions made based on this content. Introduction Under prior law, bonus depreciation under IRC §168(k) was scheduled to phase down — 60% in 2024, 40% in 2025, and 20% in 2026. However, the One Big Beautiful Bill Act of 2025 (OBBBA) reversed this trend and permanently restored 100% bonus depreciation for qualifying property placed in service after January 19, 2025. This legislative change re-opened powerful planning opportunities for business acquisitions, including financed software. Financing & Accelerated Deductions One of the most powerful planning tools arises when financing is combined with accelerated expensing: Example – Vehicle: A business buys a $50,000 truck, pays $10,000 down, and finances $40,000. If all requirements are met, both §179 and §168(k) allow the business to deduct the full $50,000 in year one, despite only $10,000 cash invested. Example – Software: A business acquires enterprise software for $500,000, with $100,000 down and a $400,000 recourse loan. As long as the active business and eligibility rules are met, the business may deduct the entire $500,000 in the first year. Key point: The deduction follows ownership and recourse debt , not just cash outlay. Legislative Framework BUSINESS FIRST Asset purchase transactions should always be evaluated as business opportunities first , with any tax benefits following from proper structure and use. Congress designed Sections 179 and 168(k) to accelerate business investment. Advisors should view opportunities in line with that intent — business-driven acquisitions with compliant reporting that may result in tax benefits. Active Business Use Must be used in an actual trade or business. SaaS contracts, licensing, or recurring service agreements help substantiate. Passive ownership will not qualify. Advisor Checklist – Critical Qualifiers Recourse Debt Financing must be recourse. The buyer must be personally or corporately liable, not shielded by non-recourse “walk-away” terms. Entity Structure Typically acquired through an LLC, S-Corp, or C-Corp. For pass- throughs, deductions flow to owners’ returns. Compliance and Filings Form 4562: Required to elect §179 and report bonus depreciation. Entity Returns: Partnerships: Form 1065 → Schedule K-1 S-Corporations: Form 1120-S → Schedule K-1 C-Corporations: Form 1120 Ongoing Records: Advisors should guide clients to maintain: Proof of recourse debt Business use contracts and SaaS agreements Income and expense statements Annual reporting from administrators Without ongoing documentation, deductions may be denied or penalties applied. COMPLIANCE SNAPSHOT Advisors must confirm that the following requirements are satisfied: Requirement Why It Matters Income Sufficiency §179 is limited by business taxable income; §168(k) is not. Advisors must project whether deductions can be fully utilized. Documentation Purchase contracts, financing agreements, service contracts, income records, and administrator reports should be retained. Key compliance pillars: Active business use • Recourse debt • Proper entity structure • Ongoing documentation. Without these, deductions may be challenged. Basis & At-Risk Rules Purchasers should maintain sufficient basis and be considered ‘at risk’ for their share of the investment. Otherwise, deductions may be limited even if the asset qualifies under §179 or §168(k). ACTIVE USE REQUIREMENT It’s important to note that these deductions apply only to property used in an active trade or business. For pass- through entities, §179 deductions flow through to owners’ K-1s and may offset other active income. Even limited but consistent oversight, paired with revenue activity, is generally sufficient to establish ‘active’ status. Four Advisor Takeaways Every leveraged business asset purchase must balance three elements: business purpose, economic substance, and compliance with the Internal Revenue Code. Advisors play the central role in keeping these aligned. When structured and documented properly, these strategies can create meaningful value — but when approached as tax gimmicks, they fall apart. Leveraged software acquisitions highlight how Congress’s expensing provisions can align with real business growth strategies. For advisors, the opportunity is to frame these correctly: as business-driven transactions with the added benefit of tax efficiency. With careful structuring and documentation, these strategies can create meaningful value while staying firmly within the guardrails of the Internal Revenue Code. Business First These are real business acquisitions, not loopholes. The tax advantages follow business substance. Sustained Oversight Compliance extends beyond year one. Income, expenses, and reporting must continue annually. Defensibility Well-structured deals with documentation are defensible under IRS review; sloppy execution is not. Your Role is Critical Advisors must confirm structure, financing, entity choice, and compliance. Closing Thought Disclaimer This paper is for educational purposes only. It is intended for qualified tax, accounting, and financial professionals, and should not be construed as tax, legal, or investment advice. The information provided is general in nature and may not apply to every situation. Each taxpayer’s circumstances are unique, and clients should consult their own qualified advisor before taking action. Neither the author nor their firm is responsible for the results of decisions made based on this content. About the Author Paul Liang, CPA, has over 15 years of experience in tax strategy and compliance for closely held businesses, partnerships, and high-net-worth individuals. He advises clients on entity structuring, accelerated depreciation strategies, and complex compliance matters. Paul is a licensed Certified Public Accountant and frequent contributor to professional education programs for CPAs and financial advisors. References Internal Revenue Service. Publication 946: How to Depreciate Property (2024). IRS Publication 925: Passive Activity and At-Risk Rules. Instructions for Form 4562 (IRS).