Year-End Tax Strategies to Reduce Your Tax Liability

The One Big Beautiful Bill Act (OBBBA) is reshaping the year-end tax planning landscape. This new law not only changes several long-standing tax-reduction strategies but also opens the door to new ways for businesses to reduce their tax liability. Below are some of the most impactful options to consider.

Investments in Capital Assets

Year-end capital purchases have long been a go-to strategy for reducing taxes, and the OBBBA makes this even more valuable. Under the TCJA, bonus depreciation was scheduled to drop to 40 percent in 2025. The OBBBA permanently restores 100 percent 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 capped at 40 percent.

It increases the Section 179 expensing limit to $2.5 million with a $4 million phaseout, both indexed for inflation, and expands eligibility to items such as roofs, HVAC systems, fire protection systems, security systems, and specific lodging-related property. While Section 179 has more restrictions for S-Corporations, partnerships, and LLCs, it can provide a cleaner, more advantageous deduction and offers greater flexibility since it can be applied asset-by-asset, unlike bonus depreciation, which applies to an entire asset class.

Additionally, business vehicles remain viable year-end purchases but are subject to special rules, limits, and business-use allocation.

Finally, the OBBBA revises the business interest deduction by changing how adjusted taxable income is calculated, potentially increasing deductible interest on capital purchases starting in 2025.

Pass-Through Entity Tax Deduction

Many states enacted pass-through entity tax (PTET) laws in response to the TCJA’s $10,000 SALT cap. Generally, these laws allow S-Corporations, partnerships, and LLCs to pay an elective entity-level state tax on business income, with the organization deducting the full payment as a business expense and owners receiving an offsetting benefit.

Before year-end, review whether a PTET deduction is available and makes sense for you, as it can affect other tax planning strategies. The deduction may be less relevant in 2025 because the OBBBA temporarily raises the SALT cap to $40,000 with 1 percent annual increases through 2029, subject to phaseouts for MAGI above $600,000.

PTET may still be beneficial if an owner’s MAGI or standard deduction limits their SALT benefit. Electing PTET can reduce pass-through income, potentially lowering self-employment taxes, avoiding the 3.8 percent net investment income tax, and unlocking other tax breaks such as rental loss deductions and the Child Tax Credit. It can also affect the Section 199A qualified business income deduction, sometimes helping owners qualify but possibly reducing its size.

QBI Deduction

Eligible pass-through owners can deduct up to 20 percent of qualified business income (QBI), which excludes reasonable compensation, certain investments, and partner service payments. The deduction is limited by taxable income and, in some cases, W-2 wages and the unadjusted basis of qualified property.

The OBBBA expands these phase-in ranges starting in 2026, allowing more taxpayers to claim larger deductions. For 2025, strategies to maximize your QBI deduction include increasing W-2 wages, acquiring qualified property, accelerating expenses, or deferring income to avoid hitting income limits.

Research & Experimental Deduction

The OBBBA updates the research and experimental (R&E) deduction, allowing businesses to capitalize domestic Section 174 costs and amortize them over five years beginning in 2025. Small businesses with average annual gross receipts under $31 million can claim the deduction retroactively to 2022, while companies of any size with domestic R&E expenses from 2022–2024 may elect to accelerate remaining deductions over one or two years.

Year-end action is not required, but it is vital to consider how larger R&E deductions on your 2025 return could affect overall tax planning. Evaluate whether to continue amortizing expenses, recover remaining unamortized amounts in 2025, prorate deductions across 2025–2026, or claim retroactive deductions for 2022–2024.

Here to Help You with Your Year-End Tax Strategies

Now is the time to implement these strategies to reduce your tax liability. If you have any questions, we are here to help. We build value-added relationships with each client to understand their business structure and provide solid solutions. Our approach offers direct access to the firm's decision-makers. Our innovative cross-functional services help businesses address the challenges ahead.