Business Tax Planning
Year-End Business Tax Planning Strategies
As the end of the tax year approaches, now is an ideal time to consider strategies that may reduce your business’s 2025 federal tax liability. The recent One Big Beautiful Bill (OB3) extended or enhanced several taxpayer-friendly provisions. Below are opportunities to evaluate before year-end.
Take Advantage of Generous Tax Breaks for Fixed Assets
First-Year Bonus Depreciation
For assets acquired after January 19, 2025, 100% bonus depreciation is available for qualified new and used property placed in service during calendar-year 2025.
For assets acquired between January 1 and 19, 2025, bonus depreciation is limited to 40%, but Section 179 expensing may still be used.
Qualified property includes:
Personal property (equipment, furniture, heavy trucks)
Certain real property improvements, known as Qualified Improvement Property (QIP)
Land improvements
Note: QIP includes improvements to an interior portion of a nonresidential building placed in service after the building’s original in-service date, excluding enlargements, elevators/escalators, and structural framework.
Section 179 Expensing
Businesses can expense up to $2.5 million of qualifying property placed in service in tax years beginning in 2025. Eligible assets include:
Most equipment
Off-the-shelf business software
Certain real property expenditures, including QIP, roofs, HVAC, fire protection systems, and security systems for nonresidential buildings
Limitations:
Section 179 deductions cannot create a business tax loss.
The deduction phases out after $4 million of qualifying property is placed in service and fully phases out at $6.5 million.
Additional complexities apply for pass-through entity owners. Contact us for guidance.
Establish a Tax-Favored Retirement Plan
401(k) Plans
A 401(k) can be particularly attractive for small employers and the self-employed:
Employees may defer up to $23,500 in 2025
Catch-up contributions for those age 50+ increase the limit to $31,000
Employer contributions up to 20% of self-employment income (25% of W-2 income for owner-employees)
Annual total deductible contribution limit: $70,000
SEP Plans
Deductible contributions up to 20% of net self-employment income or 25% of salary
Maximum contribution for 2025: $70,000
SIMPLE IRAs
These plans are a strong option for modest-income businesses:
2025 contribution limit: $16,500
2025 contribution limit including catch-up for age 50+: $20,000
No minimum age requirement (permitting plans for employed children)
Time Business Income and Deductions for Tax Savings
Pass-through business owners are taxed at individual rates, which remain unchanged for 2025 and 2026 (adjusted annually for inflation). C corporations continue to be taxed at 21%.
General Timing Strategies
If you expect to be in the same or a lower tax bracket in 2026:
Defer income into 2026
Accelerate deductions into 2025
Options include:
Prepaying expenses
Delaying year-end invoicing (cash-basis taxpayers)
Using like-kind exchanges
Structuring sales as installment sales
If you expect to be in a higher bracket in 2026, reverse the strategy.
State Income Tax Deduction Workaround (PTET Election)
Recent legislation retroactively raised the SALT deduction cap to $40,000 for 2025 (up from $10,000). For individuals with MAGI over $500,000, the cap is reduced (but not below $10,000).
If you exceed the cap, consider a Pass-Through Entity Tax (PTET) election for partnerships or S corporations. Benefits include:
State taxes deducted at the entity level bypass the individual SALT cap.
Lower AGI at the owner level increases eligibility for AGI-based deductions.
Reduced state taxes at the individual level may allow use of the standard deduction.
Review estimated payments now to avoid underpayment penalties or improve cash flow.
Maximize the Qualified Business Income (QBI) Deduction
You may qualify for the 20% QBI deduction for income from:
Sole proprietorships
Partnerships
S corporations
REIT dividends
Publicly traded partnerships
Income Thresholds and Limitations (2025)
For 2025, the QBI deduction is unrestricted if taxable income is at or below:
$394,600 — Married filing jointly
$197,300 — All other filers
Once taxable income exceeds these thresholds:
The deduction becomes subject to limitations based on W-2 wages paid and/or the unadjusted basis immediately after acquisition (UBIA) of qualified property.
These limitations phase in over a $100,000 range for joint filers and a $50,000 range for all others.
Specified Service Trades or Businesses (SSTBs)
If the business is a specified service trade or business (including accounting, law, consulting, health, financial services, and others):
The QBI deduction is fully allowed below the threshold, just like any other business.
Once income exceeds the threshold, the SSTB deduction is phased out over the same $100,000 / $50,000 ranges.
Above the top of the phase-out range, SSTBs receive no QBI deduction.
Non-SSTBs never phase out entirely but remain subject to the wage/UBIA limits.
We can help determine whether these limitations affect your business and how to structure income or wages to maximize the deduction.
Research & Experimental (R&E) Expenses
Beginning with tax years after December 31, 2024, domestic R&E expenses are immediately deductible.
Transition relief is available to deduct previously amortized 2022–2024 R&E costs for eligible small businesses that did not amend prior returns. Contact us to coordinate planning and Section 280C implications.
Holiday Meals
Occasional meals provided for holiday or recreational events primarily for non-highly compensated employees may be 100% deductible.
Be sure to track these in a separate ledger account.
Employing Family Members
Hiring family members, especially children, can reduce overall tax liability when properly structured.
Benefits include:
Deductible wages and benefits
No federal employment taxes on wages to children under age 18
Income taxed at the child’s lower marginal rate
Wages offset by the child’s 2025 standard deduction ($15,750)
Ability to contribute to a SIMPLE IRA
Ensure compliance with payroll rules and reasonable-compensation standards.
Reporting Tip and Overtime Income
OB3 introduced new deductions for qualified tips and overtime pay retroactive to January 1, 2025, but the IRS will not update Forms W-2 or 1099 for 2025 reporting.
IRS Transition Relief (Issued Nov. 5)
The IRS will not impose penalties for failing to separately report 2025 qualifying tips and overtime if:
All other reporting is accurate
Tips are reported as required under prior rules
Employer Guidance
The IRS encourages employers to:
Report overtime using an online portal or a supplemental W-2 statement (e.g., Box 14)
Provide occupation codes to tipped employees
Maintain a separate accounting of cash tips
Some employment attorneys advise avoiding overtime reporting on 2025 W-2s due to potential litigation risks if errors occur.
Definition of “Qualified Tips” (OB3)
Qualified tips must:
Be voluntary and determined solely by the payor
Not relate to a specified service trade or business
Meet additional requirements set by IRS regulations
A proposed rule listing qualifying occupations is available here:
Occupations that customarily and regularly received tips
Additional guidance is expected.
Information Reporting Thresholds
For 2025, the reporting threshold reverts to:
$20,000 in payments and
200 transactions per payee
Forms 1099-NEC and 1099-MISC
Threshold remains $600 for 2025
Increases to $2,000 in 2026, with inflation indexing thereafter
Please review your vendor payment systems to ensure compliance.
