Year-End Tax Planning Guide for Businesses

Key Points

• The OBBB permanently extends 100 percent bonus depreciation and raises Section 179 limits, creating significant year-end tax opportunities.
• Reviewing owner compensation, entity structure, and available tax credits can help maximize deductions under new 2025 provisions.
• Proactive planning with your tax advisor helps ensure compliance, strengthen cash flow management, and align your tax strategy with 2026 business goals.

As 2025 draws to a close, business owners have a valuable opportunity to strengthen cash flow, reduce tax liability, and prepare for a successful year ahead. The IRS has released its 2025 inflation-adjusted thresholds, and the One Big Beautiful Bill Act (OBBB) introduced permanent provisions designed to support reinvestment and business growth. Working with your Goering & Granatino tax advisor now can help turn these changes into actionable savings.

Key Highlights

Expense and Revenue Timing Strategies

The timing of income and expenses can have a significant impact on your 2025 tax liability. Businesses should review projected earnings before year-end and determine whether deferring or accelerating revenue and expenses will improve their tax position.

Strategies to consider:

• Defer income: Delay invoicing or collections until January to push revenue into 2026.
• Accelerate expenses: Prepay vendor invoices, bonuses, or maintenance costs before December 31 to increase 2025 deductions.
• Work with Accounting data: Use your accounting data and financial forecasts to model cash flow, identify deductible opportunities, and ensure alignment with your 2026 goals.

Equipment Purchases and Asset Expensing

The OBBB made 100 percent bonus depreciation permanent for qualified property placed in service after January 19, 2025, and increased the Section 179 expensing limit to $2.5 million, with a phase-out beginning at $4 million.
(These new limits are part of the OBBB statute. For more information or to learn how this applies to your situation, contact your tax advisor. )

Planning opportunities for 2025:

• Purchase and place qualifying equipment, vehicles, and software into service before year-end.
• Review fixed-asset schedules with your tax advisor to verify accurate classification and documentation.
• Evaluate whether bonus depreciation or Section 179 expensing provides the better outcome for your business’s tax situation.

These provisions provide flexibility for capital-intensive businesses that are investing or modernizing operations.

Leverage Key Business Credits

Tax credits provide direct, dollar-for-dollar savings and are an essential part of year-end planning.

Credits to review before filing:

• Research and Development (R&D) Credit: Offsets qualified R&D expenditures.
• Work Opportunity Tax Credit (WOTC): Encourages hiring individuals from targeted groups such as veterans or long-term unemployed workers.
• Employer-Provided Childcare Credit: Provides a credit for qualified childcare expenditures.
• Energy-related credits: Certain clean-energy credits remain available through 2025.

Your tax advisor can help analyze payroll, operating data, and project costs to determine eligibility or ensure these credits are properly documented and claimed.

Optimize Owner Compensation and Entity Structure

The OBBB made the 20 percent Qualified Business Income (QBI) deduction permanent for eligible pass-through entities. This deduction allows qualifying businesses to reduce taxable income while supporting reinvestment in operations.

Action steps:

• Review W-2 wages, guaranteed payments, and distributions to maintain the right balance between salary and pass-through income.
• Confirm that your current entity type remains tax-efficient under the new OBBB provisions.
• Discuss options with your tax advisor to evaluate compensation structures and entity-level changes. They can help model potential tax savings.

Retirement Plan Contributions

Offering and funding employer-sponsored retirement plans provides tax benefits for both owners and employees.

Retirement plan limits for 2025:

• 401(k), 403(b), and 457 plans: Contribution limit of $23,500.
• Catch-up contribution: $7,500 for employees aged 50 and older.
• Enhanced catch-up: $11,250 for employees aged 60 to 63 under SECURE 2.0.

Completing plan contributions before year-end helps reduce taxable income while strengthening employee retention and engagement.

International and Interest Expense Considerations

The OBBB modernized several international and financing-related tax provisions.

Key updates for 2025:

• EBITDA-based interest limitation reinstated: For larger businesses, the limit on how much interest expense can be deducted is now based on EBITDA (earnings before interest, taxes, depreciation, and amortization) instead of EBIT—generally allowing a bigger deduction.
• What this means for most firms: Businesses with under $30 million in annual gross receipts remain exempt from these limits, but understanding the rule is still important as firms grow or operate within consolidated groups that may exceed the threshold.
• Global tax rules revised: Updates to the GILTI, FDII, and BEAT provisions aim to simplify compliance and improve long-term consistency for multinational companies.
• GILTI (Global Intangible Low-Taxed Income): Applies to S. shareholders owning at least 10% of a foreign corporation, requiring them to include certain foreign earnings in U.S. taxable income.
• FDII (Foreign-Derived Intangible Income): Applies to S. C corporations that earn income from selling goods or providing services to foreign customers, offering a reduced tax rate to encourage keeping IP and income in the U.S.
• BEAT (Base Erosion and Anti-Abuse Tax): Applies to large U.S. corporations with average annual gross receipts of $500 million or more that make deductible payments to foreign affiliates, ensuring profits aren’t shifted out of the U.S.

Businesses with foreign operations or intercompany loans should review transfer pricing and repatriation strategies before year-end.

IRS Compliance and State Nexus

The IRS continues to expand its enforcement efforts, particularly for high-income and closely held businesses.

• Maintain complete documentation for deductions, depreciation schedules, and credits.
• Reconcile financial records regularly with your tax advisor to ensure accuracy and audit readiness.
• Evaluate whether remote employees or online operations have created new state tax nexus obligations.

Accurate reporting and proactive compliance minimize risk and support smoother audit outcomes.

Corporate Transparency Act (CTA) Compliance

Most U.S.-formed businesses are now exempt from reporting Beneficial Ownership Information (BOI) under the Corporate Transparency Act following FinCEN’s March 26, 2025 interim final rule. Only foreign entities registered to do business in the United States are required to file reports, with deadlines based on their registration date.

Your tax advisor can help determine whether your entity qualifies as a reporting company, confirm filing deadlines, and ensure compliance with the latest FinCEN requirements.

Preparing for 2026

Year-end tax planning is more than a once-a-year exercise; it’s a strategic process that supports long-term growth. By leveraging the benefits of the OBBB, maintaining strong compliance practices, and working closely with your tax advisor, you can position your business for a stronger, more tax-efficient 2026.

 

Frequently Asked Questions (FAQ)

1. What is the difference between Section 179 expensing and bonus depreciation?
   Section 179 allows businesses to immediately expense qualified assets up to an annual limit, while bonus depreciation provides a full write-off for new or used property with no dollar cap. The right choice depends on your business’s income level, asset mix, and long-term tax strategy.
2. How does the OBBB affect small business tax planning for 2025?
   The OBBB permanently extends key deductions and credits, giving small businesses greater certainty in tax planning. It also simplifies compliance and expands eligibility for incentives like the QBI deduction and energy-related credits.
3. What should business owners know about the Corporate Transparency Act (CTA)?
   As of March 26, 2025, most U.S.-formed businesses are exempt from reporting Beneficial Ownership Information (BOI) to FinCEN under the Corporate Transparency Act. The rule now applies only to foreign entities registered to do business in the United States. Business owners should confirm whether their entities qualify as reporting companies and coordinate with advisors to meet applicable filing deadlines.
4. Why should businesses work with a tax advisor for year-end tax planning?
   A tax advisor provides insight into your real-time financial position, helps identify strategic tax opportunities, and ensures compliance with new regulations. With proactive planning, they help maximize deductions and strengthen your cash flow heading into 2026.

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