Maximize Your 2025 Tax Savings With Smart Year-End Planning

The One Big Beautiful Bill Act (OBBBA) has reshaped the framework for year-end tax planning and introduced important changes that affect long-standing tax reduction strategies. It also opens new pathways for businesses to lower their 2025 federal tax liability before December 31. Now is the ideal time to understand how these updates may influence your planning decisions and which opportunities may deliver the greatest benefit.

Thanks to bonus depreciation, businesses have commonly turned to year-end capital asset purchases to cut their taxes. The OBBBA helps make this strategy even more powerful for 2025.

Under the Tax Cuts and Jobs Act (TCJA), 100% first-year bonus depreciation declined by 20 percentage points each year beginning in 2023, falling to 40% in 2025. The OBBBA restores and makes permanent 100% bonus depreciation for qualified new and used assets acquired and placed in service after January 19, 2025. (Qualified purchases made in 2025 on or before January 19 remain subject to the 40% limit.)

The law also boosts the Section 179 expensing election limit for small and midsize businesses to $2.5 million, with the phaseout threshold lifted to $4 million. (Both amounts will be adjusted annually for inflation.)

Most assets eligible for bonus depreciation also qualify for Sec. 179 expensing. But Sec. 179 expensing is allowed for certain expenses not eligible for bonus depreciation — specifically, roofs, HVAC equipment, fire protection and alarm systems, and security systems for nonresidential real property, as well as depreciable personal property used predominantly in connection with furnishing lodging.

Sec. 179 expensing is subject to several limitations that don’t apply to first-year bonus depreciation, especially for S corporations, partnerships and limited liability companies treated as partnerships for tax purposes. So, when assets are eligible for either break, claiming allowable 100% first-year bonus depreciation may be beneficial.

However, Sec. 179 expensing is more flexible, you can take it on an asset-by-asset basis. With bonus depreciation, you have to take it for an entire class of assets (for example, all MACRS 7-year property). Business vehicles are popular year-end purchases to boost depreciation-related tax breaks. They’re generally eligible for bonus depreciation and Sec. 179 expensing, but keep in mind that they’re subject to additional rules and limits. Also, if a vehicle is used for both business and personal use, the associated expenses, including depreciation, must be allocated between deductible business use and nondeductible personal use.

As an added perk, the OBBBA changes the business interest deduction, specifically, the calculation of adjusted taxable income, which could allow you to deduct more interest on capital purchases beginning in 2025.

Dozens of states enacted pass-through entity tax (PTET) deduction laws in response to the TCJA’s $10,000 limit on the federal deduction for state and local taxes (SALT), also referred to as the SALT cap. The mechanics vary, but the deductions generally let pass-through entities (partnerships, limited liability companies and S corporations) pay an elective entity-level state tax on business income with an offsetting tax benefit for the owners. The organization deducts the full payment as a business expense.

Before year end, it’s important to review whether a PTET deduction is available to you and, if so, whether it’ll make sense to claim it. This can impact other year-end tax planning strategies.

The PTET deduction may be less relevant for 2025 because the OBBBA temporarily boosts the SALT cap to $40,000 (with 1% increases each year through 2029). The higher cap is subject to phaseouts based on modified adjusted gross income (MAGI); when MAGI reaches $600,000, the $10,000 cap applies.

But the PTET deduction may still be worthwhile in some circumstances. It could pay off, for example, if an owner’s MAGI excludes the owner from benefiting from the higher cap or if an owner’s standard deduction would exceed his or her itemized deductions so the owner wouldn’t benefit from the SALT deduction.

By reducing the income passed through from the business, a PTET deduction election could also help an owner reduce his or her liability for self-employment taxes and avoid the 3.8% net investment income tax. Moreover, lower income could unlock eligibility for other tax breaks, such as deductions for rental losses and the Child Tax Credit. Bear in mind, though, that while a PTET deduction could help you qualify for the Section 199A qualified business income (QBI) deduction despite the income limit (see below), it also might reduce the size of the deduction.

Eligible pass-through entity owners can deduct up to 20% of their QBI, whether they itemize deductions or take the standard deduction. QBI refers to the net amount of income, gains, deductions and losses, excluding reasonable compensation, certain investments and payments to partners for services rendered.

The deduction is subject to limitations based on taxable income and, in some cases, on W-2 wages paid and the unadjusted basis of qualified property (generally, the purchase price of tangible depreciable property held at the end of the tax year). The OBBBA expands the phase-in ranges for those limits so that more taxpayers will qualify for larger QBI deductions beginning in 2026.

In the meantime, you can still take steps to increase your QBI deduction for 2025. For example, if your income might be high enough that you’ll be subject to the W-2 wage or qualified property limit, you could increase your W-2 wages or purchase qualified property. Timing tactics — generally, accelerating expenses into this year and deferring income into 2026 — might also help you avoid income limits on the deduction.

The OBBBA significantly improves the treatment of research and experimental (R&E) expenses. After the TCJA, businesses were required to capitalize domestic Section 174 costs and amortize them over five years, with a 15 year period for foreign costs. Beginning in 2025, OBBBA allows full current expensing of domestic R&E costs, restoring the ability to deduct these expenses in the year they are incurred. Foreign R&E costs remain subject to longer amortization rules.

The law also creates important transition and catch up opportunities. Small businesses can apply the new domestic expensing rules retroactively to 2022 by filing amended returns, which may generate immediate tax refunds or free up cash for reinvestment. All taxpayers that have been amortizing domestic R&E costs in 2022 through 2024 can choose to accelerate any remaining deductions over either a one year or two year period beginning in 2025, rather than waiting out the original five year schedule.

As part of year end planning, review your R&E activity for 2022 through 2025 to determine where retroactive expensing, amended returns, or accelerated deductions could reduce your overall tax burden. Consider how larger near term R&E deductions interact with other provisions, such as excess business loss limitations and the R&E credit. Coordinating these choices can help you optimize both cash flow and long term tax efficiency under the new OBBBA rules.

Year-end tax planning still offers powerful opportunities to reduce your 2025 liability, both through strategies affected by the OBBBA and through traditional approaches such as accelerating expenses, deferring income, or strengthening retirement contributions. Taking action now can make a meaningful difference in your results.

CSH works closely with businesses across industries to navigate complex tax law changes and design strategies that support long-term success. If you would like guidance tailored to your situation, contact us today to start a conversation.