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Bonus Depreciation and Other Year-End Tax-Saving Tools for Businesses

As this year comes to a close, business owners seeking to reduce their taxes for 2025 have a variety of opportunities. Here’s a look at two tax-saving tools: bonus depreciation and retirement plan contributions.

Assets Eligible for Bonus Depreciation

First-year bonus depreciation has been given new life under the legislation commonly known as the “One Big Beautiful Bill Act" (OBBBA). It had been scheduled to be only 40% for 2025 (60% for certain long-production assets) and to vanish after 2026. The OBBBA permanently reinstates 100% bonus depreciation for eligible assets acquired and placed in service after January 19, 2025. Acquiring eligible assets and placing them in service by Dec. 31, 2025, could significantly reduce your 2025 tax liability.

Eligible assets include most depreciable personal property, such as:

• Equipment,
• Computer hardware and peripherals,
• Certain vehicles, and
• Commercially available software.

Also eligible is qualified improvement property (QIP), defined as improvements to the interior of a nonresidential building that was already placed in service. QIP doesn’t include costs to change the building’s internal structural framework (such as enlargement). These costs must generally be depreciated over 39 years.

Unlike Section 179 expensing, which is limited to $2.5 million for 2025 (up from $1.25 million before the OBBBA) and subject to a phaseout, the amount of bonus depreciation a taxpayer can claim is generally unlimited. But there are other tax consequences to consider.

Beware of the Excess Business Loss Rule

Individual taxpayers who have losses as a sole proprietor or as an owner of a pass-through entity (partnerships, S corporations and, generally, limited liability companies) may inadvertently trigger the excess business loss rule when they claim bonus depreciation. The excess business loss rule allows business losses to offset income from other sources (such as salary, self-employment income, interest, dividends and capital gains) only up to an annual limit. Amounts above that limit are excess business losses. For 2025, this is the excess of aggregate business losses over $313,000 ($626,000 for married couples filing jointly).

Excess business losses can’t be deducted in the current year and must be carried forward to the following tax year. Such losses can then be deducted under the rules for net operation loss carryforwards. As a result, an individual taxpayer’s 100% first-year bonus depreciation deduction can effectively be limited by the excess business loss rule.

Save Taxes by Saving for Retirement

Tax-favored retirement plans can provide significant savings for small business owners, both by building retirement security and by reducing taxes. Contributions are tax-deductible (or pre-tax, if you’re contributing as an employee).

One of the simplest options is a Simplified Employee Pension (SEP) IRA. If you’re self-employed, you can contribute up to 20% of your net income to a SEP IRA, with a cap of $70,000 for the 2025 tax year. If your own corporation employs you, the contribution limit is 25% of your salary, also capped at $70,000. The tax savings can be substantial.

Other options include 401(k)s, SIMPLE IRAs and defined benefit plans. Depending on your age and income, some of these options might allow you to make even larger contributions. Ask your tax advisor for details.

Wrapping it Up

The permanent restoration of 100% first-year bonus depreciation creates tax-saving opportunities for taxpayers while they expand their business potential. And a tax-favored retirement plan is beneficial for you, your business and your employees. Every business is different, so it’s essential to consult a tax professional. Contact the office for help tailoring your tax strategies for 2025 and beyond.

5 Smart Tips for Individual Year-End Tax Planning

Even during the last two months of the year, you can take steps to reduce your 2025 tax liability. Here are five practical strategies to consider.

1. Use Bunching to Maximize Deductions

If your itemized deductions are close to the standard deduction, consider a “bunching" strategy. This means timing certain payments (such as mortgage interest, state and local taxes, charitable gifts and medical expenses) so that they push you above the standard deduction in one year. The following year, you can take the standard deduction and, to the extent possible, defer paying deductible expenses to the following year. This alternating approach helps you capture deductions that might otherwise be lost.

2. Balance Gains and Losses

If you have investments in taxable accounts, keep an eye on both realized and unrealized gains and losses. Selling appreciated securities held for more than a year ensures they’re taxed at your lower long-term capital gains rate (typically 15% or 20%, plus the 3.8% net investment income tax at higher income levels), rather than your higher, ordinary-income rate (which may be as much as 37%). But selling investments at a loss can offset gains. If losses exceed gains, up to $3,000 can offset ordinary income, with the remainder carried forward. This flexibility can reduce taxes this year and in future years.

3. Gift Appreciated Assets to Loved Ones

If you want to support family members while cutting your tax bill, consider giving appreciated investments to adult children or other relatives in lower tax brackets. They can sell the assets at a lower capital gains rate, possibly even 0%. Just be cautious about the “kiddie tax," which generally applies to children under age 19 (24 if they’re full-time students), and potential gift tax implications.

4. Give Wisely to Charities

Instead of donating cash, consider giving highly appreciated stock or mutual fund shares that you’ve held more than one year. You avoid the capital gains tax you’d owe if you sold the shares, and you can deduct the full fair market value if you itemize. Alternatively, selling investments at a loss and donating the proceeds allows you to claim both the capital loss and the charitable deduction. With some tax rules set to tighten in 2026, making larger gifts before year-end could be especially advantageous. (But if you don’t itemize, you can look forward to the limited charitable deduction that will be available to nonitemizers beginning in 2026.)

5. Use Your IRA for Donations

For those age 70½ or older, making charitable donations directly from an IRA, called “qualified charitable distributions" (QCDs), offers unique advantages. You can donate up to $108,000 in 2025 directly to qualified charities, keeping those amounts out of your taxable income. This strategy reduces adjusted gross income, which may help preserve eligibility for other tax breaks.

Final Thought

The best tax strategies depend on your personal situation. Timing, income level and future expectations all matter. Before taking action, contact the office to tailor these approaches to your needs.

Throwing a Party for Your Workforce? Know the Tax Rules

The holiday season is here once again, and for some workplaces, that means holiday parties. Although the rules for deducting business entertainment expenses changed several years ago, you may still qualify for some holiday party write-offs for this year, possibly even the entire cost. As you plan, understand the rules so you can avoid potentially costly missteps.

The Rules Before and Since the TCJA

Before the Tax Cuts and Jobs Act (TCJA), businesses could deduct 50% of certain entertainment costs, such as tickets for clients after contract negotiations. Although the TCJA permanently eliminated deductions for entertainment expenses starting in 2018, a key exception remains: If your business holds a company-wide party for employees, you may be able to deduct 100% of the cost. Some examples of potentially eligible expenses are:

• Food and beverages,
• Decorations,
• Venue and furniture rentals,
• Prizes and giveaways, and
• DJ or live band fees

However, for such expenses to be deductible, the party must not be “lavish and extravagant,” and the entire staff must be invited, not just management. Also, if your staff consists only of family members, your party costs aren’t deductible. Under family attribution rules, the IRS views this as an event for owners or officers rather than employees.

Nonemployee Guests

Inviting friends, family, clients or business associates complicates matters. Here’s an example:

In December 2025, a company invites 60 employees and their partners to a holiday party. Forty employees and their plus-ones attend. In addition, the owner invites five friends, three business associates, and two independent contractors, who all attend with their plus-ones. The total party tab is $10,000, or $100 per person, for 100 guests.

On its 2025 corporate return, the company may deduct $8,000 (the $100 cost for each of the 40 employees and their 40 plus-ones). The $2,000 cost for the other 20 guests is considered personal and not deductible. Independent contractors are treated as nonemployees for this purpose, even if they perform similar work.

The takeaway is that the more nonemployees you invite, the less you can deduct.

Safeguarding Your Deductions

As always, keep detailed receipts and records. If the IRS questions your deductions, it may request documentation. Reduce audit risk by keeping expenses reasonable relative to company size and limiting personal guests.

Finally, contact the office with your questions. By seeking professional guidance in advance, you can show your workforce your holiday appreciation while maximizing your deductions and staying compliant with current tax law.

Make Sure Every Donation Counts

Charities obviously benefit when you donate to them. But you can also benefit by securing a tax deduction on your 2025 income tax return if you donate by Dec. 31, itemize deductions and comply with the tax rules. Here are a few rules to keep in mind:

• Ensure you’re donating to a qualified charitable organization. A tool on the IRS website, the Exempt Organizations Select Check, allows users to confirm a charity’s tax-exempt status.
• If you receive something in return for your donation, find out its fair market value (FMV). Suppose you donate $500, and, in return, you receive event tickets. You must subtract the FMV of the tickets from the $500 to arrive at your tax deduction.
• Substantiation rules apply when deducting charitable gifts, and they vary based on the type and amount of the donation. For example, some types of property donations may require a professional appraisal.

Contact the office with any questions about the charitable deduction rules.

Making Tax-Free Gift in 2025 and 2026

As the year winds down, you may be hoping to combine smart estate tax planning with tax savings using the annual gift tax exclusion. For 2025 and 2026, this exclusion is $19,000, which you may give in cash or property to any number of family members or friends, without gift tax implications. Married couples may be able to give up to $38,000 to any recipient.

Generally, married taxpayers can also gift an unlimited amount to their spouse without gift tax implications. However, if the spouse isn’t a U.S. citizen, the 2025 gift exclusion is limited to $190,000 (rising to $194,000 for 2026). Gifts exceeding that amount may require filing a federal gift tax return.

Each year you need to use your annual exclusions by Dec. 31. They don’t carry over from year to year. For example, if you don’t make an annual exclusion gift to your granddaughter this year, you can’t add this year’s unused exclusion to next year’s exclusion to make a $38,000 tax-free gift to her in 2026. Contact the office with questions.

Easier Reporting Rules for Some Forms

A pesky reporting burden for businesses will be eased by legislation signed into law on July 4. Currently, businesses must issue a Form 1099-MISC to any payee (and to the IRS) when transactions reach $600 in a calendar year. And businesses that pay $600 or more for services rendered by an independent contractor must issue a Form 1099-NEC (Nonemployee Compensation).

Beginning with payments made in 2026, the threshold rises from $600 to $2,000 and will be adjusted for inflation in subsequent years. This change simplifies compliance and reduces the risk of penalties for missed 1099 filings. However, businesses must continue to maintain accurate records of all payments.

Upcoming Tax Due Dates

November 17

Employers: Deposit Social Security, Medicare and withheld income taxes for October if the monthly deposit rule applies.

Employers: Deposit nonpayroll withheld income tax for October if the monthly deposit rule applies.

Calendar-year exempt organizations: File a 2024 information return (Form 990, Form 990-EZ or Form 990-PF) if a six-month extension was filed. Pay any tax, interest and penalties due.

December 10

Individuals: Report November tip income of $20 or more to employers (Form 4070).

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