Capital expenditures are not directly tax deductible. However, they can reduce a company’s taxes indirectly by way of the depreciation that they generate. For example, if a company purchases a $1 million piece of equipment that has a useful life of 10 years, it could include $100,000 of depreciation expense each year for 10  years. This depreciation would reduce the company’s pre-tax income by $100,000 per year, thereby reducing their income taxes.