As 2025 draws to a close, business owners have more certainty regarding many tax provisions that were previously set to expire. The One Big Beautiful Bill Act (OBBBA), signed into law July 4, 2025, preserved many provisions from the Tax Cuts and Jobs Act (TCJA), made others permanent, and clarified the direction of federal tax policy heading into 2026.
Here are some strategies to consider before the end of the year that can help you be financially prepared for what’s next.
Deferring income and accelerating deductions
One common strategy is to defer income to the next tax year while accelerating deductible expenses into the current year. By doing so, you lower your taxable income, reducing the amount you owe when tax season arrives. If your cash flow permits, you might consider postponing sending out invoices until January, so the income isn’t recognized until 2026. Likewise, you can pay deductible expenses like rent, insurance premiums, employee bonuses, or utility bills before year end.
However, if you expect to earn more next year or anticipate changes in tax rates, it might be more beneficial to reverse this approach. In such cases, bringing income into the current year and postponing deductions to the next year can help offset higher taxes down the road. To accelerate income, consider offering discounts to encourage early payments or completing sales before year-end. Defer expenses by delaying purchases until after the new year.
It’s important to note that the effectiveness of these strategies depends on whether you use cash-basis or accrual accounting. Under the cash-basis method, income and expenses are recognized when cash changes hands. This makes it relatively straightforward to accelerate or defer income and expenses.
The accrual method recognizes income when services are provided or goods are delivered, regardless of when payment is received. Expenses are deducted when they are incurred, not necessarily when they are paid. To accelerate income under accrual accounting, you need to deliver products or complete services before year-end. Receiving payment before the end of the year doesn’t affect income recognition. Similarly, prepaying expenses like rent or insurance won’t accelerate deductions under accrual accounting. However, you can still accelerate some deductions by incurring expenses earlier. For instance, if you plan to purchase equipment or other deductible items in the near future, making those purchases before year-end allows you to deduct them in 2025.
Maximize the QBI deduction
The 20% deduction for qualified business income (QBI) has now been made permanent. This means eligible owners of pass-through entities (sole proprietorships, partnerships, and S corporations) can plan with more certainty.
For 2025, the QBI deduction begins to phase out when taxable income exceeds $394,600 for married couples filing jointly or $197,300 for other filers. The deduction is fully phased out when a married couple filing jointly has taxable income of $494,600 and other filers have taxable income of $247,300.
Starting in 2026, the OBBBA introduces a minimum deduction of $400 for qualifying small business owners with at least $1,000 in QBI who materially participate in the business. The $400 deduction will be adjusted for inflation in subsequent tax years.
Understanding W2 wages and UBIA limitations
If your business isn’t in a specialized service field (health, law, accounting, consulting, athletics, financial services, brokerage services), the deduction doesn’t phase out entirely once you reach the income threshold, but it is limited to the lesser of:
- 20% of your QBI, or
- The greater of 50% of:
- W2 wages paid, or
- 25% of W2 wages paid plus 2.5% of the UBIA of qualified property.
This means the amount of W2 wages your business pays and the value of its qualified property directly impact your allowable deduction.
Strategies to maximize the QBI deduction
One way to maximize the deduction is to keep your taxable income below the phase-out thresholds. This can be achieved by deferring income, accelerating deductible expenses, and contributing to tax-deferred retirement plans.
Once taxable income exceeds the threshold, however, you’ll likely want to increase W2 wages. Many pass-through business owners are inclined to minimize W2 wages to reduce payroll taxes, but this strategy can significantly limit your QBI deduction. In many cases, the tax savings from a higher QBI deduction can outweigh the additional payroll taxes incurred by increasing W2 wages.
Please note that the rules surrounding the QBI deduction are intricate and vary based on individual circumstances. Given this complexity, it’s crucial to consult with a CPA. They can provide personalized advice to ensure you’re maximizing the deduction while complying with all tax laws and regulations.
Capitalize on Section 179 deduction and bonus depreciation
Section 179
Section 179 allows you to deduct the full purchase price of qualifying equipment and software in the year it is placed in service. For 2025, the deduction limit under Section 179 increased to $2.5 million, and the phase-out threshold increased to $4 million of qualifying property placed in service in the year. This applies to most depreciable property like machinery, equipment, off-the-shelf software, and certain nonresidential building improvements, including roofs, HVAC, fire protection, and security systems.
Even if you acquire the qualifying property late in the year, you can still deduct the full amount for 2025. However, Section 179 deductions cannot exceed your business’s taxable income for the year. Any excess is carried forward to future years.
Bonus depreciation
The OBBBA restores 100% bonus depreciation permanently for qualified property acquired and placed in service after January 19, 2025, reversing the prior phase-down schedule. Unlike Section 179, bonus depreciation doesn’t have an annual deduction limit and can create a net operating loss since it’s not limited by any taxable income. “Qualified property” generally includes tangible personal property with a recovery period of 20 years or less, certain computer software, and used property acquired from unrelated parties.
Caution: New York, and many other states, don’t conform to the federal bonus depreciation rules. In such instances, bonus depreciation claimed on the federal return must be added back in full to state taxable income, and the bonus depreciation-eligible property is depreciated over the normal recovery period for state purposes.
Business losses and excess business loss rules
Under the TCJA and subsequent legislation, non-corporate taxpayers remain subject to limits on “excess business losses.” The OBBBA makes those limits permanent.
For tax years beginning in 2025, non-corporate taxpayers cannot offset more than $313,000 (single) or $626,000 (married filing jointly) of business losses against other non-business income. Losses above these thresholds aren’t lost; instead, they’re carried forward and treated as a net operating loss (NOL). That NOL may be used in future years to offset income. Future NOL deductions are limited to 80% of taxable income for losses arising in years after December 31, 2017.
If your business is projecting a significant loss in 2025, coordinate with your advisor to determine whether shifting expenses or income can keep the loss below the threshold so it’s fully deductible now, or plan how to use an NOL in future years under the 80% limitation.
Ensure estimated tax payments are made on time
To avoid penalties, make your last estimated tax payment for the year by the due date, January 15, 2026. Even if you’ve fallen behind on estimated tax payments for previous quarters, catching up by the January 15 deadline can help reduce potential penalties and interest. While it may not eliminate penalties for earlier underpayments, making the full payment now can prevent additional charges from accruing.
Plan for retirement contributions
By maximizing both employer and personal contributions to retirement accounts, you can lower your tax liability and enhance retirement savings for yourself and your employees.
Employers can contribute the following amounts to employees’ retirement plans:
- SEP IRA Contributions: employers can contribute up to 25% of an eligible employee’s compensation or $70,000 for 2025, whichever is less. These contributions are tax-deductible for the business and can be made up until the tax filing deadline, including extensions.
- 401(k) Contributions: the contribution limit for 2025 is $23,500 for employee contributions and $70,000 for combined employee and employer contributions.
By contributing to these plans, employers can reduce their taxable income and enhance employee satisfaction and retention by offering valuable retirement benefits.
Research and development credit
The OBBBA reinstated the option to immediately expense domestic research and development costs that were previously required to be capitalized and amortized over 5 years under the TCJA. Taxpayers that incur R&D expenses on work carried out internationally must capitalize and amortize those expenses over 15 years. If a taxpayer is classified as a small business by the IRS (average annual gross receipts of $31 million or less for the three-year tax period ending with the preceding tax year), the domestic R&D costs can be expensed on amended 2022 tax returns. All businesses can accelerate their remaining amortization on domestic R&D costs incurred between 2022 and 2024 over 1 to 2 years.
Use the de minimis safe harbor election
The de minimis safe harbor election allows businesses to immediately expense lower-cost tangible property and materials and supplies that would otherwise need to be capitalized and depreciated over time. This reduces the need to track and depreciate numerous small-dollar assets over several years.
If your business has an applicable financial statement (AFS), you can deduct up to $5,000 per item or invoice. An AFS is typically an audited financial statement prepared in accordance with generally accepted accounting principles (GAAP). Larger businesses or those with regulatory requirements usually have an AFS. For instance, your business purchases 20 office chairs at $400 each. Since each chair costs less than $5,000, you can deduct the total cost of $8,000 immediately as long as you attach a statement titled “Section (a)-1(f) de minimis safe harbor election” to your tax return.
If you don’t have an AFS, you can still take advantage of the de minimis safe harbor, but the deduction limit is $2,500 per item or invoice.
To use the election, you must have written accounting procedures in place at the beginning of the tax year that specify amounts paid for property under the relevant dollar threshold will be expensed for accounting purposes. If you have an AFS, these procedures must be in writing. For businesses without an AFS, while written procedures are not required by the IRS, it’s best practice to document them in writing to ensure consistency and compliance. In all cases, you must apply these procedures consistently in your books and records throughout the taxable year.
Review inventory levels and accounts receivable
Taking the time to review your inventory levels before year-end can uncover valuable opportunities to reduce your taxable income. Start by conducting a thorough physical inventory count and compare the results with your financial records. Identify any discrepancies, such as excess, obsolete, or damaged stock. Writing off this inventory as a loss not only cleans up your balance sheet but also reduces your taxable income for the current year.
In addition to inventory, it’s wise to examine your accounts receivable. Analyze your aging report to identify any outstanding debts that are unlikely to be collected. Writing off bad debts as uncollectible can provide a deduction, further lowering your taxable income. This improves the accuracy of your financial statements and gives you a clearer picture of your cash flow heading into the new year.
To truly maximize your tax savings and ensure that you’re in full compliance with all regulations, please contact your trusted TBC advisor.