Eighteen months might seem like a distant horizon, but 2027 is arriving faster than you think. The tax landscape for startups and small businesses is about to shift significantly. The most impactful change? Bonus depreciation—a provision that's saved founders hundreds of millions in equipment costs—is scheduled to phase out completely by 2027.
If you're planning capital expenditures, considering equipment purchases, or strategizing about company structure and employee compensation, what happens in 2027 affects your decisions today. This guide breaks down the major changes and what they mean for your business.
The Biggest Change: Bonus Depreciation Phase-Out
Bonus depreciation has been one of the most valuable tax provisions for startups. It allows businesses to immediately deduct the full cost of qualifying equipment and assets rather than depreciating them over several years. This has been a game-changer for capital-intensive startups.
Here's the timeline:
- Through 2022: 100% bonus depreciation (full deduction in year one)
- 2023–2026: 80%, 60%, 40%, 20% phased reduction
- 2027 and beyond: Bonus depreciation expires completely
Starting January 1, 2027, equipment purchases revert to traditional depreciation schedules. A $100,000 server purchase that you could deduct 20% of in 2026 will need to be depreciated over 5 years, starting in 2027.
Impact for Startups
If you're planning significant equipment purchases, infrastructure investments, or technology upgrades, timing matters enormously. A $500,000 equipment investment in 2026 could generate $100,000 in deductions immediately. That same investment in 2027 would be depreciated over time, pushing deductions into future years.
Qualified Small Business Stock (QSBS): Enhanced Exclusions
For founders and early investors holding startup equity, new QSBS rules are dramatically favorable. Starting January 1, 2027, the capital gains exclusion on QSBS has been expanded significantly.
New QSBS Rules (2027+):
- Hold 3 years: 50% capital gains exclusion
- Hold 4 years: 75% capital gains exclusion
- Hold 5+ years: 100% capital gains exclusion (full exclusion on gains)
Previously, the QSBS exclusion was 50% for stock held 5+ years. Now, you get 100% exclusion if you hold 5 years or more. This is a massive advantage for founders with equity stakes.
Example: QSBS Advantage
You bought $500,000 of founder shares in 2021. The company is now worth $5M. Under old rules (pre-2027), your capital gain is $4.5M and you'd exclude 50% = $2.25M excluded, $2.25M taxable at 20% capital gains = $450,000 in federal taxes.
Under 2027 rules, if you hold 5+ years: $4.5M excluded entirely = $0 federal capital gains tax.
Qualified Opportunity Fund (QOF) Changes
Starting January 1, 2027, new incentives apply to investments in Qualified Opportunity Funds—special investment vehicles designed to encourage capital investment in economically distressed areas.
New QOF Rules:
Capital gains can be deferred if reinvested in QOFs within 180 days. The deferred gains become taxable at the earlier of (1) sale of the QOF investment or (2) the fifth anniversary of the investment. Additionally, if you hold a QOF investment 5+ years, you receive a 10% step-up in basis, permanently excluding 10% of gains from taxation.
For founders with significant capital gains, QOF investments provide a tax-efficient way to defer and potentially reduce taxes on those gains while supporting economic development in targeted areas.
Impact for High-Growth Exits
If you're anticipating an exit with substantial capital gains, QOF reinvestment is worth exploring. Deferral of gains for 5 years plus the step-up in basis can provide meaningful tax savings, particularly for founders in high-income states.
Personal Tax Changes: What Founders Should Know
While most attention focuses on business depreciation, personal tax changes in 2027 also matter for founder compensation and investment decisions.
Standard Deduction and Tax Brackets
The One Big Beautiful Bill Act (passed mid-2025) made permanent the Tax Cuts and Jobs Act individual provisions. This means:
- Standard deduction for 2026: $16,100 (single), $32,200 (MFJ)
- Tax brackets at 10%, 12%, 22%, 24%, 32%, 35%, 37% remain in place
- Annual indexing for inflation continues
These provisions are now permanent through at least 2034 (unless Congress acts), providing stability for personal tax planning.
Alternative Minimum Tax (AMT)
For high-income founders, AMT exemptions are important. For 2026, the AMT exemption is $90,100 (single) and $140,200 (MFJ), with phaseout beginning at $500,000 (single) and $1,000,000 (MFJ).
If you have substantial pass-through income from your startup, AMT planning becomes relevant—especially if you're exercising stock options or selling equity.
Pass-Through Deduction: Now Permanent
The 20% deduction for pass-through business income (for S-Corps, LLCs taxed as partnerships, and sole proprietorships) is now permanent law. This means as a founder taking distributions or salary from a pass-through entity, 20% of qualified business income is potentially deductible.
For a founder taking $500,000 in distributions, this could mean $100,000 in deductions annually, worth approximately $25,000-$37,000 in federal tax savings depending on your bracket.
Strategic Planning Before 2027
The major planning opportunity sits in 2026—accelerating equipment purchases before bonus depreciation expires. Here's a strategic checklist:
- Audit capital expenditure plans: Are there equipment, infrastructure, or technology investments you're considering in 2027 or 2028? Pull them forward to 2026.
- Evaluate bonus depreciation impact: Calculate the tax value of accelerated deductions vs. deferral. For a $1M investment, the difference could be $200k-$300k in tax timing.
- Coordinate with profitability: If you're not profitable in 2026, accelerating deductions may not help. Consider timing carefully.
- QSBS holding strategy: If you hold founder shares, ensure you understand the 5-year and 10-year milestones for maximum tax benefits.
- Entity structure review: Confirm your current entity (C-Corp, S-Corp, LLC) is optimal given these permanent changes to pass-through taxation.
Real-World Example: SaaS Startup Equipment Upgrade
Your SaaS startup is planning a $200,000 infrastructure upgrade (servers, networking equipment) to scale from 100 to 500 customers. You're timing it for mid-2027.
Option 1: Upgrade in 2026
$200,000 purchase in 2026. Under current rules, 20% is deductible = $40,000 deduction. Tax savings at 25% bracket = $10,000.
Option 2: Upgrade in 2027
$200,000 purchase in 2027. Bonus depreciation is gone. You depreciate over 5 years at $40,000/year. Total deductions: $40,000/year × 5 years, but that's future deductions worth less in today's dollars.
The 2026 acceleration saves you ~$10,000 in immediate tax liability, plus preserves that cash for other uses. For capital-intensive startups, this math applies to every dollar of equipment.
Final Thoughts: Plan Now for 2027
The 2027 tax changes don't represent the end of favorable tax policy—they're an evolution. Bonus depreciation was always meant to phase out; QSBS and QOF changes actually expand opportunities. The key is planning.
If you're a founder or CFO, review your 2027 outlook now. Are there capital projects you should accelerate? Are equity holdings positioned for optimal tax treatment? Is your entity structure aligned with permanent pass-through rules?
These are strategic questions worth $10,000-$100,000+ in tax savings over the next few years.
Ready to Optimize for 2027 Tax Law?
We work with startups to audit 2027 tax exposure and identify planning opportunities. Whether it's bonus depreciation acceleration, QSBS strategy, or entity structure optimization, let's build a roadmap aligned with the new rules.
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Emily Kessler Barnett
Fractional CFO & Tax Strategy Expert. Specialises in pre-planning for major tax law changes. Helps startups understand depreciation rules, QSBS strategy, and entity optimization for maximum tax efficiency.