Following are ten key 2025 year-end planning points for business entities to evaluate:
1. Qualified Business Income Deduction (Section 199A)
Key Changes:
- The 20% deduction for qualified business income (QBI) is made permanent for tax years after 2025.
- The phase-in threshold for wage/property limitations is increased to $75,000 ($150,000 joint), up from $50,000 ($100,000 joint).
- A $400 minimum deduction is established for active business income (with inflation adjustments), provided aggregate QBI from all active trades or businesses is at least $1,000.
Planning Considerations:
- Review taxable income and QBI to maximize the deduction, especially for owners near the new higher phase-in thresholds.
- Ensure material participation in the business to qualify for the minimum deduction.
- Consider the impact of the new minimum deduction for lower-income active businesses.
2. Expensing of Domestic Research and Experimental (R&E) Expenditures (Section 174A)
Key Changes:
- Immediate expensing of domestic R&E expenditures is allowed for tax years beginning after December 31, 2024.
- Small businesses meeting the Section 448(c) gross receipts test can retroactively elect expensing for 2022–2024 by filing amended returns within one year of enactment (by July 4, 2026).
- Foreign R&E must still be amortized over 15 years.
Planning Considerations:
- Consider amending prior returns to claim immediate expensing for domestic R&E, which may generate refunds or reduce tax liabilities.
- Segregate domestic and foreign R&E costs for proper treatment.
- Evaluate whether to elect optional amortization for cash flow or income smoothing.
3. Full Expensing for Qualified Business Property (Section 168(k))
Key Changes:
- 100% bonus depreciation for qualified business property is made permanent for property acquired after January 19, 2025.
- Transitional elections allow for reduced bonus rates for certain property.
Planning Considerations:
- Accelerate purchases of eligible property to maximize immediate deductions.
- Review asset acquisition plans for optimal timing and tax benefit.
4. Section 179 Expensing
Key Changes:
- Section 179 expensing limit increased to $2.5 million, with phaseout at $4 million, both indexed for inflation, for property placed in service in tax years beginning after December 31, 2024.
Planning Considerations:
- Consider year-end purchases to take advantage of the higher expensing limits.
- Coordinate Section 179 and bonus depreciation strategies for maximum benefit.
5. Limitation on Excess Business Losses (Section 461(l))
Key Changes:
- The limitation on excess business losses for noncorporate taxpayers is made permanent, with thresholds adjusted for inflations.
Planning Considerations:
- Monitor business losses and plan for possible carryforwards as net operating losses.
- Structure transactions (e.g., sale bonuses, large deductions) to avoid triggering excess business loss limitations where possible.
6. 1099 Information Reporting Thresholds
Key Changes:
- Form 1099-MISC/NEC reporting threshold increased from $600 to $2,000 (indexed for inflation) for payments made after December 31, 2025.
- Form 1099-K threshold restored to $20,000/200 transactions for third-party network transactions.
Planning Considerations:
- Update vendor and contractor payment tracking systems to reflect new thresholds.
- Review reporting processes to ensure compliance and avoid penalties.
7. Charitable Contribution Deductions
Key Change:
- For corporations, only contributions exceeding 1% of taxable income are deductible, up to the 10% limit.
Planning Consideration:
- For C corporations, plan charitable giving to exceed the new 1% floor.
8. State and Local Tax (SALT) Deduction Cap
Key Change:
- SALT deduction cap increased to $40,000 ($20,000 MFS) for 2025, indexed for inflation, with a phase-down for high incomes; reverts to $10,000 after 2029.
Planning Considerations:
- For owners in high-tax states, consider timing of tax payments to maximize the higher cap before it phases down.
- Evaluate passthrough entity tax elections as a workaround for the SALT cap.
9. Opportunity Zones and Low-Income Housing Tax Credit
Key Changes:
- Opportunity zone designations now require decennial review; the ability to defer capital gains by investing in Qualified Opportunity Funds is made permanent.
- Low-income housing tax credit state ceilings and bond financing rules are enhanced and made permanent.
Planning Consideration:
- Evaluate new or ongoing investments in opportunity zones and low-income housing projects for long-term tax deferral and credits.
10. Other Notable Provisions
- Paid Family and Medical Leave Credit: Made permanent and expanded to include insurance premiums.
- Business Meals: 100% deduction for meals on certain fishing vessels and remote facilities.
- Employer-Provided Child Care Credit: Increased to 40% (50% for small businesses), with higher limits and expanded eligibility.
- Adoption Credit: Up to $5,000 is now refundable.
- Dependent Care Assistance: Exclusion limit increased to $7,500 ($3,750 MFS).
- AMT Exemption: Higher exemption and phaseout thresholds made permanent, but phaseout rate increased to 50% for high earners.
Planning Considerations:
- Review eligibility for new or expanded credits and deductions.
- For high-income owners, model the impact of new AMT phaseout rates and itemized deduction limitations.
General Year-End Planning Tips
- Accelerate deductions and defer income where possible, especially in light of permanent expensing and higher deduction limits.
- Review entity structure to ensure optimal use of new and enhanced deductions and credits.
- Monitor pending IRS guidance on OBBBA provisions, especially for international and cross-border transactions, as further clarifications are expected.