5 tax breaks on the table: What business owners should know about the latest proposals

A bill in Congress — dubbed The One, Big, Beautiful Bill — could significantly reshape several federal business tax breaks. While the proposed legislation is still under debate, it’s already sparking attention across business communities. Here’s a look at the current rules and proposed changes for five key tax provisions and what they could mean for your business. 1. Bonus depreciation Current rules: Businesses can deduct 40% of the cost of eligible new and used equipment in the year it’s placed in service. (In 2026, this will drop to 20%, eventually phasing out entirely by 2027.) Proposed change: The bill would restore 100% bonus depreciation retroactively for property acquired after January 19, 2025, and extend it through 2029. This would be a major win for businesses looking to invest in equipment, machinery and certain software. Why it matters: A full deduction in the year of purchase would allow for faster depreciation, freeing up cash flow. This could be especially beneficial for capital-intensive industries. 2. Section 179 expensing Current rules: Businesses can “expense” up to $1.25 million of qualified asset purchases in 2025, with a phaseout beginning at $3.13 million. Under Section 179, businesses can deduct the cost of qualifying equipment or software in the year it’s placed in service, rather than depreciating it over several years. Proposed change: The bill would increase the expensing limit to $2.5 million and the phaseout threshold to $4 million for property placed into service after 2024. The amounts would be adjusted annually for inflation. Why it matters: This provision could help smaller businesses deduct more of the cost (or the entire cost) of qualifying purchases without dealing with depreciation schedules. Larger thresholds would mean more flexibility for expanding operations. 3. Qualified business income (QBI) deduction Current rules: Created by the Tax Cuts and Jobs Act (TCJA), the QBI deduction is currently available through 2025 to owners of pass-through entities. These include S corporations, partnerships, limited liability companies, sole proprietors and most self-employed individuals. QBI is defined as the net amount of qualified items of income, gain, deduction and loss that are effectively connected with the conduct of a U.S. business. The deduction generally equals 20% of QBI, not to exceed 20% of taxable income minus net capital gain. But it’s subject to additional limits that can reduce or eliminate the tax benefit. Proposed change: Under the bill, the QBI tax break would be made permanent. Additionally, the deduction amount would increase to 23% for tax years beginning after 2025. Why it matters: The increased deduction rate and permanent extension would lead to substantial tax savings for eligible pass-through entities. If the deduction is made permanent and adjusted for inflation, businesses could engage in more effective long-term tax planning. 4. Research and experimental (R&E) expensing Current rules: Under the TCJA, businesses must capitalize and amortize domestic R&E costs over five years (15 years for foreign research). Proposed change: The bill would reinstate a deduction available to businesses that conduct R&E. Specifically, the deduction would apply to R&E costs incurred after 2024 and before 2030. Providing added flexibility, the bill would allow taxpayers to elect whether to deduct or amortize the expenditures. (The requirement under current law to amortize such expenses would be suspended while the deduction is available.) Why it matters: Many businesses — especially startups and tech firms — depend heavily on research investments. Restoring current expensing could ease tax burdens and encourage innovation. 5. Increase in information reporting amounts Current rules: The annual reporting threshold for payments made by a business for services performed by an independent contractor is generally $600. That means businesses must send a Form 1099-NEC to contractors they pay more than $600 by January 31 of the following year. Proposed change: The bill would generally increase the threshold to $2,000 in payments during the year and adjust it for inflation. This provision would apply to payments made after December 31, 2024. (The bill would also make changes to the rules for Form 1099-K issued by third-party settlement organizations.) Why it matters: This proposal would reduce the administrative burdens on businesses. Fewer 1099-NECs would need to be prepared and filed, especially for small engagements. If the provision is enacted, contractors would receive fewer 1099-NECs. Income below $2,000 annually would still have to be reported to the IRS, so contractors may have to be more diligent in tracking income. More to consider These are just five of the significant changes being proposed. The One, Big, Beautiful Bill also proposes changes to the business interest expense deduction and some employee benefits. It would eliminate federal income tax on eligible tips and overtime — and make many more changes. If enacted, the bill could deliver immediate and long-term tax relief to certain business owners. It narrowly passed in the U.S. House of Representatives and is currently being considered in the Senate. Changes are likely to be made there, at which point the new version would have to be passed again by the House before being sent to President Trump to be signed into law. The current uncertainty means business owners shouldn’t act prematurely. While these changes may sound beneficial, their complexity — and the possibility of retroactive provisions — make professional guidance essential. Contact us to discuss how to proceed in your situation. © 2025

 

If you or your employees are heading out of town for business this summer, it’s important to understand what travel expenses can be deducted under current tax law. To qualify, the travel must be necessary for your business and require an overnight stay within the United States.

Note: Under the Tax Cuts and Jobs Act, employees can’t deduct their unreimbursed travel expenses on their own tax returns through 2025. That’s because unreimbursed employee business expenses are “miscellaneous itemized deductions” that aren’t deductible through 2025. In the “One, Big, Beautiful Bill,” passed by the U.S. House and now being considered by the Senate, miscellaneous itemized deductions would be permanently eliminated. Keep in mind that pending legislation could still change.

However, self-employed individuals and businesses can continue to deduct business expenses, including expenses for away-from-home travel.

Deduction rules to know

Travel expenses like airfare, taxi rides and other transportation costs for out-of-town business trips are deductible. You can deduct the cost of meals and lodging, even if meals aren’t tied directly to a business discussion. However, meal deductions are limited to 50% in 2025.

Keep in mind that expenses must be reasonable based on the facts and circumstances. Extravagant or lavish meals and lodging aren’t deductible. However, this doesn’t mean you have to frequent inexpensive restaurants. According to IRS Publication 463, Travel, Gift and Car Expenses, “Meal expenses won’t be disallowed merely because they are more than a fixed dollar amount or because the meals take place at deluxe restaurants, hotels or resorts.”

What other expenses are deductible? Items such as dry cleaning, business calls and laptop rentals are deductible if they’re business-related. However, entertainment and personal costs (for example, sightseeing, movies and pet boarding) aren’t deductible.

Business vs. personal travel

If you combine business with leisure, you’ll need to divide the expenses. Here are the basic rules:

• Business days only. Meals and lodging are deductible only for the days spent on business.
• Travel costs. If the primary purpose of the trip is business, the full cost of getting there and back (for example, airfare) is deductible. If the trip is mainly personal, those travel costs aren’t deductible at all.
• Time matters. In an audit, the IRS often considers the proportion of time spent on business versus personal activities when determining the primary purpose of the trip.

Note: The primary purpose rules are stricter for international travel.

Special considerations

If you’re attending a seminar or conference, be prepared to prove that it’s business-related and not just a vacation in disguise. Keep all relevant documentation that can help prove the professional or business nature of the travel.

What about bringing your spouse along? Travel expenses for a spouse generally aren’t deductible unless he or she is a bona fide employee and the travel serves a legitimate business purpose.

Maximize deductions

Tax rules can be tricky, especially when business and personal travel overlap. To protect your deductions, keep receipts and detailed records of dates, locations, business purposes and attendees (for meals). Reach out to us for guidance on what’s deductible in your specific situation.

© 2025

 

Prior to the enactment of the Tax Cuts and Jobs Act (TCJA), businesses were able to claim a tax deduction for most business-related interest expense. The TCJA created Section 163(j), which generally limits deductions of business interest, with certain exceptions.

If your business has significant interest expense, it’s important to understand the impact of the deduction limit on your tax bill. The good news is there may be ways to soften the tax bite in 2025.

The nuts and bolts

Unless your company is exempt from Sec. 163(j), your maximum business interest deduction for the tax year equals the sum of:

• 30% of your company’s adjusted taxable income (ATI),
• Your company’s business interest income, if any, and
• Your company’s floor plan financing interest, if any.

Assuming your company doesn’t have significant business interest income or floor plan financing interest expense, the deduction limitation is roughly equal to 30% of ATI.

Your company’s ATI is its taxable income, excluding:

• Nonbusiness income, gain, deduction or loss,
• Business interest income or expense,
• Net operating loss deductions, and
• The 20% qualified business income deduction for pass-through entities.

When Sec. 163(j) first became law, ATI was computed without regard to depreciation, amortization or depletion. But for tax years beginning after 2021, those items are subtracted in calculating ATI, shrinking business interest deductions for companies with significant depreciable assets.

Deductions disallowed under Sec. 163(j) may be carried forward indefinitely and treated as business interest expense paid or accrued in future tax years. In subsequent tax years, the carryforward amount is applied as if it were incurred in that year, and the limitation for that year will determine how much of the disallowed interest can be deducted. There are special rules for applying the deduction limit to pass-through entities, such as partnerships, S corporations and limited liability companies that are treated as partnerships for tax purposes.

Small businesses are exempt from the business interest deduction limit. These are businesses whose average annual gross receipts for the preceding three tax years don’t exceed a certain threshold. (There’s an exception if the business is treated as a “tax shelter.”) To prevent larger businesses from splitting themselves into small entities to qualify for the exemption, certain related businesses must aggregate their gross receipts for purposes of the threshold.

Ways to avoid the limit

Some real estate and farming businesses can opt out of the business interest deduction limit and therefore avoid it or at least reduce its impact. Real estate businesses include those that engage in real property development, redevelopment, construction, reconstruction, acquisition, conversion, rental, operation, management, leasing or brokerage.

Remember that opting out of the interest deduction limit comes at a cost. If you do so, you must reduce depreciation deductions for certain business property by using longer recovery periods. To determine whether opting out will benefit your business, you’ll need to weigh the tax benefit of unlimited interest deductions against the tax cost of lower depreciation deductions.

Another tax-reduction strategy is capitalizing interest expense. Capitalized interest isn’t treated as interest for purposes of the Sec. 163(j) deduction limit. The tax code allows businesses to capitalize certain overhead costs, including interest, related to the acquisition or production of property.

Interest capitalized to equipment or other fixed assets can be recovered over time through depreciation, while interest capitalized to inventory can be deducted as part of the cost of goods sold. We can crunch the numbers to determine which strategy would provide a better tax advantage for your business.

You also may be able to mitigate the impact of the deduction limit by reducing your interest expense. For example, you might rely more on equity than debt to finance your business or pay down debts when possible. Or you could generate interest income (for example, by extending credit to customers) to offset some interest expense.

Weigh your options

Unfortunately, the business interest deduction limitation isn’t one of the many provisions of the Tax Cuts and Jobs Act scheduled to expire at the end of 2025. But it’s possible Congress could act to repeal the limitation or alleviate its impact. If your company is affected by the business interest deduction limitation, contact us to discuss the impact on your tax bill. We can help assess what’s right for your situation.

© 2025

 

If an individual taxpayer has substantial business losses, unfavorable federal income tax rules can potentially come into play. Here’s what you need to know as you assess your 2024 tax situation.

Disallowance rule

The tax rules can get complicated if your business or rental activity throws off a tax loss — and many do during the early years. First, the passive activity loss (PAL) rules may apply if you aren’t very involved in the business or if it’s a rental activity. The PAL rules generally only allow you to deduct passive losses to the extent you have passive income from other sources. However, you can deduct passive losses that have been disallowed in previous years (called suspended PALs) when you sell the activity or property that produced the suspended losses.

If you successfully clear the hurdles imposed by the PAL rules, you face another hurdle: You can’t deduct an excess business loss in the current year. For 2024, an excess business loss is the excess of your aggregate business losses over $305,000 ($610,000 for married joint filers). For 2025, the thresholds are $313,000 and $626,000, respectively. An excess business loss is carried over to the following tax year and can be deducted under the rules for net operating loss (NOL) carryforwards explained below.

Deducting NOLs

You generally can’t use an NOL carryover, including one from an excess business loss, to shelter more than 80% of your taxable income in the carryover year. Also, NOLs generally can’t be carried back to an earlier tax year. They can only be carried forward and can be carried forward indefinitely. The requirement that an excess business loss must be carried forward as an NOL forces you to wait at least one year to get any tax-saving benefit from it.

Example 1: Taxpayer has a partial deductible business loss

David is unmarried. In 2024, he has an allowable loss of $400,000 from his start-up AI venture that he operates as a sole proprietorship.

Although David has no other income or losses from business activities, he has $500,000 of income from other sources (salary, interest, dividends, capital gains and so forth).

David has an excess business loss for the year of $95,000 (the excess of his $400,000 AI venture loss over the $305,000 excess business loss disallowance threshold for 2024 for an unmarried taxpayer). David can deduct the first $305,000 of his loss against his income from other sources. The $95,000 excess business loss is carried forward to his 2025 tax year and treated as part of an NOL carryover to that year.

Variation: If David’s 2024 business loss is $305,000 or less, he can deduct the entire loss against his income from other sources because he doesn’t have an excess business loss.

Example 2: Taxpayers aren’t affected by the disallowance rule

Nora and Ned are married and file tax returns jointly. In 2024, Nora has an allowable loss of $350,000 from rental real estate properties (after considering the PAL rules).

Ned runs a small business that’s still in the early phase of operations. He runs the business as a single-member LLC that’s treated as a sole proprietorship for tax purposes. For 2024, the business incurs a $150,000 tax loss.

Nora and Ned have no income or losses from other business or rental activities, but they have $600,000 of income from other sources.

They don’t have an excess business loss because their combined losses are $500,000. That amount is below the $610,000 excess business loss disallowance threshold for 2024 for married joint filers. So, they’re unaffected by the disallowance rule. They can use their $500,000 business loss to shelter income from other sources.

Partnerships, LLCs and S corporations

The excess business loss disallowance rule is applied at the owner level for business losses from partnerships, S corporations and LLCs treated as partnerships for tax purposes. Each owner’s allocable share of business income, gain, deduction, or loss from these pass-through entities is taken into account on the owner’s Form 1040 for the tax year that includes the end of the entity’s tax year.

The best way forward

As you can see, business losses can be complex. Contact us if you have questions or want more information about the best strategies for your situation.

© 2025

 

A variety of tax-related limits that affect businesses are indexed annually based on inflation. Many have increased for 2025, but with inflation cooling, the increases aren’t as great as they have been in the last few years. Here are some amounts that may affect you and your business.

2025 deductions as compared with 2024

• Section 179 expensing:
  • Limit: $1.25 million (up from $1.22 million)
  • Phaseout: $3.13 million (up from $3.05 million)
  • Sec. 179 expensing limit for certain heavy vehicles: $31,300 (up from $30,500)
• Standard mileage rate for business driving: 70 cents per mile (up from 67 cents)
• Income-based phaseouts for certain limits on the Sec. 199A qualified business income deduction begin at:
  • Married filing jointly: $394,600 (up from $383,900)
  • Other filers: $197,300 (up from $191,950)

Retirement plans in 2025 vs. 2024

• Employee contributions to 401(k) plans: $23,500 (up from $23,000)
• Catch-up contributions to 401(k) plans: $7,500 (unchanged)
• Catch-up contributions to 401(k) plans for those age 60, 61, 62 or 63: $11,250 (not available in 2024)
• Employee contributions to SIMPLEs: $16,500 (up from $16,000)
• Catch-up contributions to SIMPLEs: $3,500 (unchanged)
• Catch-up contributions to SIMPLE plans for those age 60, 61, 62 or 63: $5,250 (not available in 2024)
• Combined employer/employee contributions to defined contribution plans (not including catch-ups): $70,000 (up from $69,000)
• Maximum compensation used to determine contributions: $350,000 (up from $345,000)
• Annual benefit for defined benefit plans: $280,000 (up from $275,000)
• Compensation defining a highly compensated employee: $160,000 (up from $155,000)
• Compensation defining a “key” employee: $230,000 (up from $220,000)

Social Security tax

Cap on amount of employees’ earnings subject to Social Security tax for 2025: $176,100 (up from $168,600 in 2024).

Other employee benefits this year vs. last year

• Qualified transportation fringe-benefits employee income exclusion: $325 per month (up from $315)
• Health Savings Account contribution limit:
  • Individual coverage: $4,300 (up from $4,150)
  • Family coverage: $8,550 (up from $8,300)
  • Catch-up contribution: $1,000 (unchanged)
• Flexible Spending Account contributions:
  • Health care: $3,300 (up from $3,200)
  • Health care FSA rollover limit (if plan permits): $660 (up from $640)
  • Dependent care: $5,000 (unchanged)

Potential upcoming tax changes

These are only some of the tax limits and deductions that may affect your business, and additional rules may apply. But there’s more to keep in mind. With President Trump back in the White House and the Republicans controlling Congress, several tax policy changes have been proposed and could potentially be enacted in 2025. For example, Trump has proposed lowering the corporate tax rate (currently 21%) and eliminating taxes on overtime pay, tips, and Social Security benefits. These and other potential changes could have wide-ranging impacts on businesses and individuals. It’s important to stay informed. Consult with us if you have questions about your situation.

© 2025

 

New and used “heavy” SUVs, pickups and vans placed in service in 2025 are potentially eligible for big first-year depreciation write-offs. One requirement is you must use the vehicle more than 50% for business. If your business usage is between 51% and 99%, you may be able to deduct that percentage of the cost in the first year. The write-off will reduce your federal income tax bill and your self-employment tax bill, if applicable. You might get a state tax income deduction too.

Setting up a business office in your home for this year can also help you collect tax savings. Here’s what you need to know about the benefits of combining these two tax breaks.

First, buy a suitably heavy vehicle

The generous first-year depreciation deal is only available for an SUV, pickup, or van with a manufacturer’s gross vehicle weight rating (GVWR) above 6,000 pounds that’s purchased (not leased). First-year depreciation deductions for lighter vehicles are subject to smaller depreciation limits of up to $20,400 in 2024. (The 2025 amount hasn’t come out yet.)

It’s not hard to find attractive vehicles with GVWRs above the 6,000-pound threshold. Examples include the Cadillac Escalade, Jeep Grand Cherokee, Chevy Tahoe, Ford Explorer, Lincoln Navigator, and many full-size pickups. You can usually find the GVWR on a label on the inside edge of the driver’s side door.

Take advantage of generous depreciation deductions

Favorable depreciation rules apply to heavy SUVs, pickups and vans that are used over 50% for business because they’re classified as transportation equipment for federal income tax purposes. Three factors to keep in mind:

• First-year Section 179 deductions. Many businesses can write off most or all of the business-use portion of a heavy vehicle’s cost in year 1 under the Section 179 deduction privilege. The maximum Sec. 179 deduction for tax years beginning in 2024 is $1.25 million.
• Limited Sec. 179 deductions for heavy SUVs. There’s a limit on Sec. 179 deductions for heavy SUVs with GVWRs between 6,001 and 14,000 pounds. For tax years beginning in 2025, the limit is $31,300.
• First-year bonus depreciation. For heavy vehicles placed in service in 2025, the first-year bonus depreciation percentage is currently 40%, but future legislation may allow a bigger write-off. There are several limitations on Sec. 179 deductions but no limits on 40% bonus depreciation. So, bonus depreciation can help offset the impact of Sec. 179 limitations, if applicable.

Then, qualify for home office deductions

Again, the favorable first-year depreciation rules are only allowed if you use your heavy SUV, pickup, or van over 50% for business.

You’re much more likely to pass the over-50% test if you have an office in your home that qualifies as your principal place of business. Then, all the commuting mileage from your home office to temporary work locations, such as client sites, is considered business mileage. The same is true for mileage between your home office and any other regular place of business, such as another office you keep. This is also the case for mileage between your other regular place of business and temporary work locations.

Bottom line: When your home office qualifies as a principal place of business, you can easily rack up plenty of business miles. That makes passing the over-50%-business-use test for your heavy vehicle much easier.

How do you make your home office your principal place of business? The first way is to conduct most of your income-earning activities there. The second way is to conduct administrative and management chores there. But don’t make substantial use of any other fixed location (like another office) for these chores.

Key points: You must use the home office space regularly and exclusively for business throughout the year. Also, if you’re employed by your own corporation (as opposed to being self-employed), you can’t deduct home office expenses under the current federal income tax rules.

Double tax break

You can potentially claim generous first-year depreciation deductions for heavy business vehicles and also claim home office deductions. The combination can result in major tax savings. Contact us if you have questions or want more information about this strategy.

© 2025

 

As a business owner, you may travel to visit customers, attend conferences, check on vendors and for other purposes. Understanding which travel expenses are tax deductible can significantly affect your bottom line. Properly managing travel costs can help ensure compliance and maximize your tax savings.

Your tax home

Eligible taxpayers can deduct the ordinary and necessary expenses of business travel when away from their “tax homes.” Ordinary means common and accepted in the industry. Necessary means helpful and appropriate for the business. Expenses aren’t deductible if they’re for personal purposes, lavish or extravagant. That doesn’t mean you can’t fly first class or stay in luxury hotels. But you’ll need to show that expenses were reasonable.

Your tax home isn’t necessarily where you maintain your family home. Instead, it refers to the city or general area where your principal place of business is located. (Special rules apply to taxpayers with several places of business or no regular place of business.)

Generally, you’re considered to be traveling away from home if your duties require you to be away from your tax home for substantially longer than an ordinary day’s work and you need to get sleep or rest to meet work demands. This includes temporary work assignments. However, you aren’t permitted to deduct travel expenses in connection with an indefinite work assignment (more than a year) or one that’s realistically expected to last more than a year.

Deductible expenses

Assuming you meet these requirements, common deductible business travel expenses include:

• Air, train or bus fare to the destination, plus baggage fees,
• Car rental expenses or the cost of using your vehicle, plus tolls and parking,
• Transportation while at the destination, such as taxis or rideshares between the airport and hotel, and to and from work locations,
• Lodging,
• Tips paid to hotel or restaurant workers, and
• Dry cleaning / laundry.

Meal expenses are generally 50% deductible. This includes meals eaten alone. It also includes meals with others if they’re provided to business contacts, serve an ordinary and necessary business purpose, and aren’t lavish or extravagant.

Claiming deductions

Self-employed people can deduct travel expenses on Schedule C. Employees currently aren’t permitted to deduct unreimbursed business expenses, including travel expenses.

However, businesses may deduct employees’ travel expenses to the extent they provide advances or reimbursements or pay the expenses directly. Advances or reimbursements are excluded from wages (and aren’t subject to income or payroll taxes) if they’re made according to an “accountable plan.” In this case, the expenses must have a business purpose, and employees must substantiate expenses and pay back any excess advances or reimbursements.

Mixing business and pleasure

If you take a trip in the United States primarily for business, but also take some time for personal activities, you’re still permitted to deduct the total cost of airfare or other transportation to and from the destination. However, lodging and meals are only deductible for the business portion of your trip. Generally, a trip is primarily for business if you spend more time on business activities than on personal activities.

Recordkeeping

To deduct business travel expenses, you must substantiate them with adequate records — receipts, canceled checks and bills — that show the amount, date, place and nature of each expense. Receipts aren’t required for non-lodging expenses less than $75, but these expenses must still be documented in an expense report. Keep in mind that an employer may have its own substantiation policies that are stricter than the IRS requirements.

If you use your car or a company car for business travel, you can deduct your actual costs or the standard mileage rate.

For lodging, meals and incidental expenses (M&IE) — such as small fees or tips — employers can use the alternative per-diem method to simplify expense tracking. Self-employed individuals can use this method for M&IE, but not for lodging.

Under this method, taxpayers use the federal lodging and M&IE per-diem rates for the travel destination to determine reimbursement or deduction amounts. This avoids the need to keep receipts to substantiate actual costs. However, it’s still necessary to document the time, place and nature of expenses.

There’s also an optional high-low substantiation method that allows a taxpayer to use two per-diem rates for business travel: one for designated high-cost localities and a lower rate for other localities.

Turn to us

The business travel deduction rules can be complicated. In addition, there are special rules for international travel and travel with your spouse or other family members. If you’re uncertain about the tax treatment of your expenses, contact us.

© 2024

 

With Labor Day in the rearview mirror, it’s time to take proactive steps that may help lower your small business’s taxes for this year and next. The strategy of deferring income and accelerating deductions to minimize taxes can be effective for most businesses, as is the approach of bunching deductible expenses into this year or next to maximize their tax value.

Do you expect to be in a higher tax bracket next year? If so, then opposite strategies may produce better results. For example, you could pull income into 2024 to be taxed at lower rates, and defer deductible expenses until 2025, when they can be claimed to offset higher-taxed income.

Here are some other ideas that may help you save tax dollars if you act soon.

Estimated taxes

Make sure you make the last two estimated tax payments to avoid penalties. The third quarter payment for 2024 is due on September 16, 2024, and the fourth quarter payment is due on January 15, 2025.

QBI deduction

Taxpayers other than corporations may be entitled to a deduction of up to 20% of their qualified business income (QBI). For 2024, if taxable income exceeds $383,900 for married couples filing jointly (half that amount for other taxpayers), the deduction may be limited based on whether the taxpayer is engaged in a service-type business (such as law, health or consulting), the amount of W-2 wages paid by the business, and/or the unadjusted basis of qualified property (such as machinery and equipment) held by the business. The limitations are phased in.

Taxpayers may be able to salvage some or all of the QBI deduction (or be subject to a smaller deduction phaseout) by deferring income or accelerating deductions to keep income under the dollar thresholds. You also may be able increase the deduction by increasing W-2 wages before year end. The rules are complex, so consult us before acting.

Cash vs. accrual accounting

More small businesses are able to use the cash (rather than the accrual) method of accounting for federal tax purposes than were allowed to do so in previous years. To qualify as a small business under current law, a taxpayer must (among other requirements) satisfy a gross receipts test. For 2024, it’s satisfied if, during the three prior tax years, average annual gross receipts don’t exceed $30 million. Cash method taxpayers may find it easier to defer income by holding off on billing until next year, paying bills early or making certain prepayments.

Section 179 deduction

Consider making expenditures that qualify for the Section 179 expensing option. For 2024, the expensing limit is $1.22 million, and the investment ceiling limit is $3.05 million. Expensing is generally available for most depreciable property (other than buildings) including equipment, off-the-shelf computer software, interior improvements to a building, HVAC and security systems.

The high dollar ceilings mean that many small and midsize businesses will be able to currently deduct most or all of their outlays for machinery and equipment. What’s more, the deduction isn’t prorated for the time an asset is in service during the year. Even if you place eligible property in service by the last days of 2024, you can claim a full deduction for the year.

Bonus depreciation

For 2024, businesses also can generally claim a 60% bonus first-year depreciation deduction for qualified improvement property and machinery and equipment bought new or used, if purchased and placed in service this year. As with the Sec. 179 deduction, the write-off is available even if qualifying assets are only in service for a few days in 2024.

Upcoming tax law changes

These are just some year-end strategies that may help you save taxes. Contact us to customize a plan that works for you. In addition, it’s important to stay informed about any changes that could affect your business’s taxes. In the next couple years, tax laws will be changing. Many tax breaks, including the QBI deduction, are scheduled to expire at the end of 2025. Plus, the outcome of the presidential and congressional elections could result in new or repealed tax breaks.

© 2024