6 Essential Year-End Business Tax Planning Strategies for 2025

Year-end is a critical time to review your business’s tax situation and uncover tax saving opportunities. The One Big Beautiful Bill Act (OBBBA) introduced sweeping changes to U.S. tax policy, many of which take effect in 2025 or 2026, raising the stakes for year-end business tax planning this year.

What year-end tax planning strategies should businesses consider with the new tax law?

The new tax law includes potentially substantial benefits for businesses. With changed rules, now’s the time to evaluate whether your business could benefit from a different entity structure or accounting method. And new and expanded deductions for business purchases offer enhanced opportunities for savings. Explore six tactics to consider before year-end.

1: Explore timing of fixed asset purchases

OBBBA permanently reinstated 100% bonus depreciation for qualified property acquired and placed in service after January 19, 2025, added an immediate deduction for the cost of certain production-related buildings, and expanded section 179 expensing. These changes allow you to potentially cut your taxes by acquiring fixed assets before year-end and enhance the tax benefits from a cost segregation analysis.

2: Review entity structure

When you organized your business, you selected how you wanted the business to be treated for tax purposes. Common entity structures include:

• C corporation
• S corporation
• Partnership
• Sole proprietorship

OBBBA introduced changes that may influence entity selection, including a permanent extension of the 20% pass-through income deduction and expanded qualified small business stock rules to allow certain C corporation shareholders to exclude up to $15 million (or, if greater, ten times stock basis) in gains from stock sales. Consider what effect, if any, such changes could have on the tax structure for your business.

Read the video transcript

There's new changes in the tax law that may impact your decision on which entity structure that you wanted to be in with the company. So one of those is a permanent extension of the 20% deduction.

That 20% deduction is available to flow-through entities. So S corps, partnerships. It's also available to sole proprietors.

And when you're reviewing the entity structure, the key is looking at the tax rate comparison between a C corp and either an S corp or partnership.* And with this 20% deduction, the top rate currently for individuals is 37% and this deduction lowers that overall rate to about 30%. So looking at that rate comparison, this lowers it the 7% and often it gives you enough of a benefit that maybe the S corp is a better structure than the C corp.

One thing to mention also with this 20% deduction is there is a wage limitation. So your deduction is limited to 50% of your total wages — W-2 wages — in the company.

So there is a planning opportunity before year-end to discuss with your tax advisor: this deduction and verify that you're not going to be limited by this wage limit.

*One important factor to consider is the current cash tax cost of operating as a C corporation and either an S corporation or partnership. There are several other factors that would go into making an entity structure decision.

Before the calendar flips to 2026, make sure your organization isn’t leaving money on the table. Watch our webinar to get strategies to end the year strong.

3: Weigh accounting method changes

There are pros and cons to changing accounting methods. When the cost of capital was low, there were fewer benefits, but now that interest rates have risen significantly, you may want to reevaluate your accounting methods.

Your accounting method determines when your organization reports income and deductions for tax purposes. Work with a tax professional to assess opportunities to impact your tax bill by changing your accounting method.

Example: SCo is an S corporation whose income is subject to a 30% income tax rate. Management considered a number of accounting method changes and decided to change from the overall accrual method to the cash method. That allowed the company to defer $500,000 of income and save approximately $150,000 in tax.

Let’s explore some common accounting method change opportunities.

Overall cash method of accounting
The 2017 tax reform bill expanded the availability of the cash method of accounting, yet some eligible businesses have remained on the accrual method. The cash method of accounting generally defers recognizing income relative to the accrual method because most taxpayers have more receivables than payables.

Advance payments for goods
Accrual-method taxpayers can account for certain advance payments in one of two ways:

• Full-inclusion method — Report payments as income in the year received
• Deferral method — Report payments as income in the year of receipt to the extent included in revenue for book purposes; defer the remainder to the next tax year

Example: CookieCo is subject to a 30% tax rate. CookieCo sells $100 of gift cards in 2025. As of year-end, $80 of the gift cards have not been redeemed and are reported as a liability for book purposes. CookieCo has two options to report the revenue from gift card sales. Under the full inclusion method, it reports $100 of income in 2025. Under the deferral method, it reports $20 of income in 2025 and $80 of income in 2026. The deferral method saves CookieCo $24 in taxes in 2025. To use the deferral method, CookieCo must determine the portion of gift card sales earned in the year of sale.

Prepaid expenses
Accrual-method taxpayers can generally deduct certain prepaid expenses with a term of up to 12 months, including:

• Insurance
• Taxes
• Warranty or maintenance service contracts

Fixed asset methods
If you own a business or investment real estate, there are several ways you may be able to accelerate deductions:

• Perform a cost segregation analysis to determine the appropriate tax life of various real estate assets
• Conduct a repair analysis to identify costs that can be expensed rather than capitalized
• Complete a Section 179D analysis to accelerate deductions related to an energy efficient building

Inventory methods
There are generally two acceptable inventory valuation methods: cost or lower-of-cost-or-market. The lower-of-cost-or-market inventory method takes more time but may reduce your inventory value and thus accelerate deductions.

A business may be able to deduct obsolete or damaged inventory if it can no longer sell the inventory in a normal manner or at its normal price. Deducting obsolete inventory is available only if the inventory is disposed of or the taxpayer establishes the reduction in its value by offering the inventory for sale to the public at a reduced price within 30 days after the inventory date. Evaluate your inventory for potential valuation-related adjustments.

The uniform capitalization rules are complex. You may be able to accelerate tax deductions by analyzing your capitalization methodologies. As just one example, you may not have fully explored the tax benefits of the modified simplified production method uniform capitalization (UNICAP) calculation option from November 2018 final regulations.

4: Create a strong tax credits and incentives strategy

OBBBA accelerates the phase-out of many renewable energy credits, leaving a limited window for taxpayers to secure permanent tax savings. For example, to qualify for solar and wind energy credits, construction must begin by July 4, 2026, or the project must be completed by December 31, 2027. If you are planning to claim energy tax credits or incentives, you should review the new law and develop a strategy to meet the shortened timelines.

The new law restored full expensing of domestic research and experimentation expenses. You have several options to deduct your unamortized research costs:

• Amending prior returns
• Deducting the costs in 2025
• Splitting the deduction between 2025 and 2026
• Continuing amortization

Forecasting each option can help you identify the most favorable approach.

5: Accelerate expense payments

Certain expenses — such as those incurred by cash-method taxpayers or paid to related parties using the cash method — are deductible only when paid. Other expenses — such as accrued bonuses payable to employees — are generally deductible only if paid within 2.5 months of year-end. You can accelerate tax deductions by carefully timing expense payments.

Example: Abigail owns 100% of Trail Corp., an accrual method taxpayer. Trail Corp. owes Abigail $50,000 for a bonus she earned during 2025. If Trail Corp. pays the bonus before year-end, it can deduct the bonus this year. If it pays the bonus January 1, 2026, the deduction is deferred until 2026. Abigail must pay tax on the bonus in the year paid, so planning should consider both the corporate- and individual-level tax consequences.

6: Harvest tax losses

If your business uses the accrual method, you can claim a bad debt deduction for uncollectible receivables you write off during the year. Analyze your receivables and write off any specific uncollectible accounts. In addition, proactive planning measures may be available to harvest tax losses from underwater or worthless investments.

FAQs: Answers to common year-end tax questions

Q: Can I switch to accrual accounting even though I’ve used cash basis accounting for years?

A: Yes, assuming eligibility requirements are met. This change can defer taxes and may offer long-term financial benefits.

Q: What’s the threshold for using cash basis accounting for my business?

A: Pass-through entities have no dollar threshold but can’t be considered a “tax shelter,” which includes a business that allocates losses to limited partners. C corporations and partnerships with C corporation partners must have average annual gross receipts under $31 million.

Q: If switching to LIFO for tax purposes, does GAAP have to follow that method as well?

A: Yes.

Q: Does changing accounting procedures result in permanent savings or just a deferral?

A: Changing accounting methods allows for tax deferral. However, if the company continues to operate and is not sold, the deferral can stretch out indefinitely, making the net present value of the deferred tax very low.

Q: Is it a good time to change my accounting method?

A: It’s a great time to consider changing your accounting method; whether it’s the right time to make a change will depending on your particular circumstances. With changing interest rates, the timing of income and deductions has become more impactful. Reassessing your accounting method — whether cash or accrual — can help enhance your tax position.

Q: Was the R&D credit eliminated now that domestic R&D costs can be expensed?

A: No. While OBBBA marked the end of some tax credits, the R&D credit continues to be available. If your company has not historically claimed the credit, it may be worth a brief discussion to evaluate whether the R&D credit is available.

How CLA can help with year-end business tax planning strategies

These are just six of many year-end tax strategies for businesses. At CLA, we believe proactive, personalized planning is key to helping you navigate tax liabilities and identify new opportunities for savings. Our business tax professionals can work with you to explore whether these suggestions could help your business.

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