Minimize Your Business’s 2025 Federal Taxes with Smart Year-End Planning

As we approach the end of 2025, now is an ideal time to make last-minute tax decisions that can reduce your federal tax liability. The One Big Beautiful Bill Act (OBBBA) has significantly reshaped the year-end planning landscape, modifying several longstanding tax-saving tools while creating new opportunities. Many traditional strategies remain effective as well. Below are some of the most impactful approaches for businesses to consider before the end of the year.

Strategies Affected by the OBBBA

Investments in Capital Assets

Year-end capital purchases have long provided valuable depreciation deductions, and the OBBBA further strengthens this strategy for 2025.

• Under the Tax Cuts and Jobs Act (TCJA), bonus depreciation was scheduled to drop to 40% in 2025.
• The OBBBA reverses this, permanently restoring 100% bonus depreciation for qualified new and used assets acquired and placed in service after January 19, 2025.
• Purchases made on or before January 19, 2025, remain subject to the 40% limit.

The OBBBA also increases Section 179 expensing to $2.5 million, with a phaseout beginning at $4 million of purchases (both indexed for inflation). Section 179 covers many assets eligible for bonus depreciation and may include:

• Roofs
• HVAC systems
• Fire protection and alarm systems
• Security systems for nonresidential property
• Certain lodging property

Section 179 offers flexibility because it can be applied asset-by-asset, but it includes income limitations that do not apply to bonus depreciation. When assets qualify for both, choosing between them should be based on your overall tax position.

Many business vehicles also qualify for Section 179 or bonus depreciation, though they remain subject to luxury-auto limits and require strict substantiation of business use. Beginning in 2025, OBBBA changes to the business interest deduction may also allow larger interest write-offs on financed purchases.

Pass-Through Entity Tax (PTET) Deduction

To mitigate the federal $10,000 SALT deduction cap, many states have enacted PTET regimes, allowing partnerships, LLCs, and S corporations to pay an entity-level state tax that is fully deductible as a business expense.

With the OBBBA temporarily increasing the SALT cap to $40,000 (with annual inflationary increases through 2029), PTET elections still offer meaningful benefits, especially when:

• The owner’s income is too high to benefit from the increased cap
• The owner takes the standard deduction
• Reducing pass-through income lowers self-employment or net investment income taxes
• Lower taxable income unlocks additional deductions (e.g., rental losses, Child Tax Credit)

A PTET election may help owners qualify for the Section 199A QBI deduction, though it may also reduce the deduction amount, making advance modeling essential.

QBI Deduction Planning

Owners of pass-through entities may deduct up to 20% of qualified business income. The deduction is subject to income thresholds and, in some cases, limits tied to W-2 wages and the unadjusted basis of qualified property.

Although the OBBBA expands certain phase-in ranges starting in 2026, actions taken in 2025 still have an impact. Depending on your income level, strategies include:

• Increasing W-2 wages
• Purchasing qualified property
• Accelerating deductible expenses into 2025
• Deferring income into 2026

Together, these may help keep income beneath thresholds that restrict the deduction.

Research & Experimental (R&E) Expense Deduction

The OBBBA provides increased flexibility for businesses incurring Section 174 R&E expenses, including:

• Allowing amortization of domestic R&E costs over five years beginning in 2025
• Allowing small businesses (average annual receipts ≤ $31 million) to take the R&E deduction retroactive to 2022
• Allowing businesses of any size to accelerate remaining unamortized 2022–2024 R&E amounts over one or two years

While these provisions may not require immediate action, they should be considered in broader year-end planning, as increased deductions can affect other tax attributes.

Additional Year-End Strategies Still Worth Considering

Even with the changes brought by the OBBBA, many traditional strategies remain effective.

Timing Income and Expenses – Cash Basis taxpayers

• Accelerate deductions into 2025 by paying bills before year-end, stocking supplies, completing repairs, or prepaying near-term services.
• Defer income into 2026 if you expect to be in the same or a lower tax bracket.
• Conversely, accelerate income into 2025 if you anticipate a higher tax bracket next year.

Boosting Retirement Plan Contributions

Retirement plans remain powerful tools for reducing taxable income.

• Increase contributions to existing plans (401(k), SIMPLE, SEP, profit-sharing).
• Consider implementing a cash balance or defined benefit plan if highly profitable.
• Certain plans may still be established before year-end, and startup credits can offset costs.

Reviewing Accounting Methods

Evaluate whether your current accounting methods remain optimal.

• Consider switching between cash and accrual accounting
• Review inventory methods, including small-business alternatives
• Revisit repair vs. capitalization classifications

Managing Estimated Taxes and Safe Harbors

To avoid underpayment penalties:

• Adjust your final 2025 estimated payment if income changed significantly
• Evaluate whether you qualify for a safe harbor (100% of prior year tax, or 110% for higher-income taxpayers)

Maximizing Available Tax Credits

If hiring or making qualified investments before year-end:

• Evaluate eligibility for the Work Opportunity Tax Credit (WOTC)
• Review energy-related credits and other incentives that require action before December 31

Reviewing Depreciation Schedules and Fixed Asset Policies

Beyond new purchases:

• Clean up fixed asset schedules
• Write off abandoned or retired assets
• Evaluate whether a de minimis safe harbor (e.g., $2,500 or $5,000 per item) simplifies expensing

Reviewing Compensation and Owner Distributions

For S corporations and certain partnerships:

• Ensure reasonable compensation requirements are met
• Review distributions for tax efficiency
• Confirm proper use of fringe benefits and accountable plans

Evaluating Loss Harvesting and Limitation Rules

Consider whether to:

• Trigger capital or ordinary losses
• Review net operating loss carryforwards
• Plan around passive activity, at-risk, or excess business loss limitations

These reviews can increase current-year deductions and position your business for 2026.

Get In Touch

Year-end tax planning has become more complex under the OBBBA, and the right approach can vary significantly from one business to another. If you’re unsure which strategies are best for your situation, consider speaking with a qualified tax professional before December 31 to ensure you’re making the most of the available opportunities.

Whittlesey’s Tax Team stays current on all recent tax developments and is ready to help. Feel free to reach out to one of our advisors for a consultation to review potential tax-saving strategies.