2025 Year-End Tax Planning for Businesses

With the extended deadlines now in the rearview mirror it is the perfect time to take a strategic look at year-end tax planning. Proactive preparation can help reduce tax burdens, improve cash flows, and position companies for long-term success. With the passage of the One Big Beautiful Bill Act (OBBBA), several key tax provisions are changing, many of which will directly affect upcoming filings. Below are some important areas to review before year-end.

1. Schedule a Meeting with Your CPA

Now is the time to connect with your CPA to review your financial position and plan strategically for tax season. A year-end tax planning meeting helps prevent surprises and allows for proactive adjustments.  With the OBBBA introducing updates to bonus depreciation, Section 163(J) interest limitations, and R&D expense rules, modeling the impact of these provisions can reveal new opportunities and help you plan accordingly for cash flow or investment purposes.

2. Reconcile Bank Accounts and Review Accounting Records

Accurate records are the foundation of effective tax planning. Perform bank reconciliations and thoroughly review your accounting files to ensure all income and expenses are properly recorded. Look for unusual balances, make necessary adjustments, and resolve discrepancies promptly. Clean, reconciled books not only simplify tax preparation but also provide a solid base for implementing year-end tax-saving strategies.

3. Maximize Depreciation

If your business has acquired, built, or renovated real estate, a cost segregation study can accelerate depreciation deductions and enhance cash flow. By reclassifying certain components—such as lighting, flooring, and landscaping—from real property to shorter-lived personal property, businesses can take advantage of faster depreciation schedules (5, 7, or 15 years).

WM Wisdom:
Coordinate Section 179 and bonus depreciation to maximize deductions and think about how it will impact your state and local tax returns.

100% Bonus Depreciation

Under the OBBBA, 100% bonus depreciation has been permanently reinstated for qualified property acquired and placed in service after January 19, 2025.

• Property placed in service between January 1–19, 2025 qualifies for a 40% bonus depreciation rate.
• Section 179 expensing limits for 2025 are $2,500,000, phasing out after $4,000,000, and fully eliminated at $6,500,000.
• Section 179 applies on an asset-by-asset basis, while bonus depreciation applies to all assets within a class unless the taxpayer elects out.

4. Review Eligibility for Business Tax Credits

Don’t overlook valuable business tax credits that can directly reduce your tax liability. The research credit rewards businesses for increasing qualified research activities.

Energy credits, such as the energy credit (IRC Sec. 48), clean electricity investment credit (IRC Sec. 48E), and clean electricity production credit (IRC Sec. 45Y), are available for investments in renewable energy and energy-efficient property. However, many energy credits are being phased out or terminated after 2025 due to recent OBBB legislation, especially those for clean vehicles, alternative fuel property, and residential clean energy. Hiring credits, such as the work opportunity credit (IRC Sec. 51) and empowerment zone employment credit (IRC Sec. 1396), incentivize hiring from targeted groups and are also set to expire after 2025. Review your eligibility for these credits now, as timely action may be required to capture expiring incentives.

5. Entity-Specific Year-End Considerations

S Corporations:
Ensure reasonable compensation is paid to shareholder-employees. Review basis and at-risk limitations to ensure losses can be fully utilized. Year-end capital contributions or shareholder loans can increase basis if needed.

Partnerships:
Optimize allocations, confirm partners have sufficient basis and at-risk amounts for loss deductions. Making additional contributions or adjusting debt shares before year-end can help fully utilize available deductions.

Final Thoughts

With the evolving tax landscape under the OBBBA, early preparation and strategic guidance from your CPA are more valuable than ever. At Wouch Maloney, we understand that navigating year-end tax planning can be complex, especially with the new tax rule changes.  Our team of experienced professionals is here to help you develop strategies tailored to your business’s unique needs.

As always, should you have questions on this or other matters affecting you or your business, please call 215.675.8364 or email us to speak with a CPA today.

DISCLAIMER: All communications by Wouch, Maloney & Co., LLP intend to provide general information, as of the date of the communication, and may reference information from reputable sources. Although our firm has made every reasonable effort to ensure that the information provided is accurate, we make no warranties, expressed or implied, on the information provided. Please be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed.