Year-end tax decisions can have a significant impact on your business now and in the years to come. Work with your tax advisor to identify adjustments and opportunities under the 2025 tax law. With a comprehensive financial picture and tailored tax planning strategies, your business can benefit from its unique tax position.
Key Takeaways
- Establish a clear baseline to understand your projected taxable income, deductions and year-end position.
- Review capital investments and accounting methods for opportunities to accelerate deductions and improve cash flow.
- Evaluate available tax credits, retirement plan strategies, and the timing of income and expenses.
- Reassess your entity structure and related owner-level tax considerations as your business evolves.
- Work with your tax advisor before year-end to identify which strategies align with your business goals and tax position.
End of the Year Business Tax Strategies
Effective year-end business tax planning starts with understanding your current tax position and identifying actions to complete before key deadlines. Depending on your organization’s circumstances, planning opportunities may include:
- Accelerating deductions
- Maximizing available tax credits
- Improving cost recovery
- Managing the timing of income and expenses
- Evaluating your entity structure
The following four steps can help your business assess potential tax-saving opportunities, manage cash flow and build a more informed tax strategy for 2027. Because each organization’s situation is different, we suggest working with your tax advisor to determine which strategies are appropriate for your business.
1.) Understand Your Baseline
Your tax advisor can prepare a pro forma 2026 tax return to provide a more comprehensive projection of your current tax situation heading into the new year. With a baseline in hand, you will have a better view of how your position may change if you incur additional deductions or realize more income, and which tax planning strategies will be advantageous to implement before year-end.
2.) Implement Cost Recovery Strategies for Capital Assets
The 2025 tax reform introduced a series of new or enhanced business deductions, one of the most notable changes for business owners resulting from P.L. 119-21, or the “One Big Beautiful Bill Act.”
Bonus Depreciation and Section 179 Expensing
With 100% bonus depreciation restored, qualified property acquired and placed in service after January 19, 2025, is now eligible for full expensing. Taxpayers can alternatively elect to claim 40% bonus depreciation on these assets placed in service in 2025.
Additionally, Section 179D expensing doubled for tax years beginning in 2025, allowing small to mid-sized businesses to immediately expense up to $2.5M, with the deduction phasing out for each dollar in equipment purchases over a $4M threshold.
To qualify for Section 179D, construction must have begun prior to June 30, 2025.
R&E Expensing
Section 174A restores full expensing of domestic research and experimental (R&E) costs incurred in tax years beginning after December 31, 2024. With the passage of P.L. 119-21, it is now optional to capitalize and amortize your domestic R&E costs over five or 10 years.
All businesses have the option of deducting these capitalized costs in their entirety in 2025, or ratably over the two-year period from 2025 - 2026. Alternatively, the costs can continue to be amortized pursuant to their current schedules.
However, all businesses are still required to capitalize foreign R&E expenditures and amortize them over 15 years.
Tax planning strategies for R&E expenditures include:
- Utilizing a Section 41 R&D tax credit study
- Utilizing Sections 174 and 174A study to identify R&E expenditures, including software development costs
De Minimis Expensing Election
Under the Tangible Property Regulations, the de minimis safe harbor election allows for certain small-dollar expenditures for tangible property to be immediately deducted. Work with your tax advisor to be sure you meet the specific criteria for this election, as certain conditions must be satisfied.
Tax Planning for Faster Cost Recovery
Cost segregation studies can accelerate depreciation for short-lived assets in real property projects. For faster cost recovery, businesses can also:
- Review asset lives and dates placed in service
- Identify deductible repair expenditures
- Claim deductions for partial dispositions
- Deduct non-incidental materials and supplies
- Maximize use of de minimis expensing election
3.) Create a Strategy To Lower Taxes
There are numerous strategies you can take to effectively lower taxes for your business. Work with your tax advisor to determine which action steps are most suitable for your specific situation, including:
- Accelerating charitable deductions
- Selling depressed value, non-core assets
- Abandoning worthless investments and assets
- Decelerating revenues by slowing invoicing and collections at year-end
- Adopting the 12-month rule for prepaid expenses and intangible assets
- Deferring income from advanced payments
- Delaying cancelation of debt transactions until 2027
- Increasing deductible expenses and limiting nondeductible expenses, such as meals, employee parking and entertainment
- Adopting a defined benefit plan
Claiming tax credits will also reduce your tax liability when filing your return. Beneficial tax credits include:
- Research and Development (R&D) Tax Credit
- Work Opportunity Tax Credit (WOTC)
- Employer-Provided Child Care Credit
- Historic Rehabilitation Credit
- Low-Income Housing Credit (LIHTC)
- New Markets Tax Credit (NMTC)
Review the tax credits available to your business and work with an advisor to check that you meet the necessary criteria.
Retirement Plans
Business owners should consider establishing and funding a qualified retirement plan before the extended due date of the 2026 income tax return. In doing so, you can deduct contributions made to the retirement plan for 2026, and earn a tax credit up to $5,000 for the cost of setting up and administering the plan.
Additionally, many small employers can earn a tax credit up to $1,000 per employee for making a plan contribution for employees who make less than $100,000. You can combine retirement plans for larger deductions. For example, combining a 401(k) with a profit-sharing plan and a defined benefit plan can yield bigger tax deductions.
The 2022 SECURE 2.0 Act also provides numerous retirement provisions to be aware of, including:
- Roth catch-up contributions for high earners
- Roth accounts in qualified plans are now exempt from lifetime RMDs
- Pension-linked emergency savings accounts
- Employer matching contributions based on student loan payments
- Plan amendment deadline extended to December 31, 2026
For efficient year-end tax planning, meet with your plan advisors to address optional and required changes to plan documents.
Reporting Compensation and Payments
To accurately report compensation and payments, it’s essential to understand changes in reporting requirements and which forms apply to different situations. Review the following:
- Form 1099-MISC/NEC: A $600 reporting threshold for 2025 payments and a $2,000 reporting threshold for 2026 payments.
- Form 1099-K: For 2025 payments, P.L. 119-21 reinstated the prior threshold of $20,000 and 200 transactions.
- Deduction for Tip Income: No required Form W-2 reporting for 2025 tips under the Act. Prepare for changes to withholding, identifying qualifying tips and job codes in 2026.
- Deduction for Overtime Pay: No required Form W-2 reporting for 2025 overtime pay under the Act. Prepare for changes to withholding, identifying and tracking qualifying overtime in 2026.
4.) Consider Your Entity Structure
The end of the year is an ideal time to reevaluate your business’s structure and make any needed changes. Sole proprietorships are common, with one owner managing the business. Those with multiple owners may operate as a pass-through entity (PTE), i.e., an S corporation or partnership, or as a C corporation.
PTE status has the potential to lower your taxes, since qualified PTEs can elect to pay a PTE tax at the entity level on behalf of the owner’s share of qualified net income. This generates a tax deduction on the PTE’s federal return and reduces the taxable income reported on the owner’s K-1.
PTEs have their own set of year-end tax planning considerations, including:
- State PTE elections
- Aggregation elections for group activities
- Loans and capital contributions before year-end to potentially boost owner basis
- Obstacles, including stock and debt basis limitation, at-risk limitation, passive activity loss limitation, and excess business loss limitation
Additionally, the 2025 tax reform enhanced Section 1202 gain exclusion from the taxable sale of C corporation stock, making it pertinent to consider the value of Section 1202 gain exclusion coupled with C corporation taxation at the company level and, again, upon dividend to shareholders. To evaluate the best entity structure for your business, you can ask yourself questions such as:
- What is the five-year plan for the company?
- How will future growth be funded?
- Have we considered available tax credits and incentives?
- Where is the company located and where will it expand?
- Who owns the company? If it is a family business, is there a succession plan?
Your tax advisor can help you evaluate these variables and determine the entity status that best suits your company.
Additional Year-end Tax Planning Strategies for Business Owners
Beyond the core strategies discussed above, businesses should consider a few additional year-end planning opportunities that could impact their overall tax position and future growth plans.
Review State and Local Tax Obligations
Expanding into new states, hiring remote employees, or increasing sales activity may create additional state filing requirements. Reviewing your state and local (SALT) exposure before year-end can help identify compliance obligations and planning opportunities.
Evaluate Qualified Business Income (QBI) Deduction Opportunities
Owners of pass-through entities should review their eligibility for the QBI deduction and determine whether year-end income, compensation, or entity planning strategies could help maximize the available benefit.
Assess International Tax Considerations
Businesses with foreign operations, cross-border transactions, or international investments should evaluate potential tax and reporting implications before year-end to avoid surprises and identify planning opportunities.
Confirm Tax Credits, Incentives and Compliance Requirements
Before year-end, review available tax credits and incentives, update documentation supporting deductions, and verify that estimated tax payments and reporting requirements are on track for a smooth filing season.
Your Guide Forward
Year-end tax planning can be complex, especially with the introduction of new and enhanced tax provisions. Our team of experienced tax professionals can answer specific questions you may have about your business’s unique tax position and how to plan for the future. Connect with a Cherry Bekaert advisor today to explore year-end planning strategies that will benefit your company.
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