Dear Client,
The big news of 2025 on the tax front has been the July passage of the One Big Beautiful Bill Act (OBBBA). The act resurrected and permanently extended many provisions from the Tax Cuts and Jobs Act (TCJA), including 100% bonus depreciation, and also increased other business friendly tax provisions. These factors create challenges, and opportunities, in developing a tax plan when there are multiple strategies to consider. However, the usual tactics of deferring income and increasing current deductions still apply for 2024. Taxpayers should consider the unique challenges and opportunities that this year presents.
YEAR-END BUSINESS STRATEGIES
Depreciation and expensing
OBBBA greatly expanded already very generous depreciation and expensing limitations. The Code Sec. 179 expensing deduction now has an investment limitation of $4,000,000 for 2025, with a dollar limitation of $2,500,000.
Taxpayers may also claim an additional first-year depreciation allowance of 100% for property placed in service after January 19, 2025. This 100% bonus depreciation was last available for property placed in service in 2022.
Clean commercial vehicles
The credit for the purchase of a clean commercial vehicle expired for vehicles purchased after September 30, 2025, so it is now too late to take any year-end action to qualify for the credit. However, the credit can still be claimed in 2025 for purchases before October 1.
Retirement Plans
The SECURE 2.0 Act of 2022 expands provisions for retirement plans to benefit both employers and plan participants.
An employer that does not sponsor a retirement plan can offer a starter 401(k) plan (or safe harbor 403(b) plan). A starter 401(k) plan (or safe harbor 403(b) plan) would generally require that all employees be enrolled in the plan at 3% to 15% of compensation deferral rate by default. The limit on annual deferrals would be the same as the IRA contribution limit. This provision is effective for plan years beginning after December 31, 2023.
The SECURE Act 2.0 permits an employer to adopt a new retirement plan by the due date of the employer’s tax return for the fiscal year in which the plan is effective. Current law, however, provides that plan amendments to an existing plan must generally be adopted by the last day of the plan year in which the amendment is effective. This precludes an employer from adding plan provisions that may be beneficial to participants. The SECURE Act 2.0 amends these provisions to allow discretionary amendments that increase participants’ benefits to be adopted by the due date of the employer’s tax return. This provision is effective for plan years beginning after December 31, 2023.
Work Opportunity Credit
One of the provisions that was not extended by OBBBA is the Work Opportunity Tax Credit, so it does not apply to employers who are otherwise eligible after the end of 2025. The credit applies to employers who hire employees who are members of designated groups. Employers who wish to claim this credit must complete all requirements for the credit before the end of the year.
Reporting for New OBBBA Deductions
The IRS recently announced that penalties will not apply to employers who fail to meet the strict reporting requirements for the new employee deductions for qualified tip and overtime income as employers may not yet have procedures in place to meet the requirements. Still, employers are encouraged to make the information available to employees so the entire reporting burden does not fall on employees. Similarly, the strict reporting requirements for sellers of new vehicles giving rise to a deduction of auto loan interest are not applicable to 2025. While these are not necessarily yearend planning issues, businesses should expect to start implementing new systems in 2026.
General Year-End Tax Planning Strategies
- Time the deduction of employee bonuses and executive compensation (note that new rules apply to the $1 million compensation deduction limit for controlled groups in 2026)
- Prepay rent and suppliers under the cash system; commit to contracts under the accrual method
- Consider inventory write-offs
- Invest in clean energy property for eligible credits
- Avoid the impact of corporate AMT
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In addition to these year-end planning issues unique to 2025, the usual year-end planning strategies also still apply, such as managing gains and losses from taxable investments and considering postponing income and accelerating deductions. There is no one size fits all for tax planning and any strategy may have unintended consequences if the taxpayer’s situation is not evaluated holistically considering the changing landscape. Please call our office to discuss all your options.