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2025 Year-End Tax Planning for Business Owners Under the One Big Beautiful Bill Act
December 9, 2025
Tax AdvisorBMF Insights
All enterprises face external pressures, and those that respond with agility are often best positioned for long-term success. For private companies, it is increasingly important to convert emerging developments into strategic opportunities. This year, such opportunities have been particularly prominent with the introduction of comprehensive tax legislation under the One Big Beautiful Bill (OBBBA).
From a tax perspective, organizations will benefit from expanded opportunities to accelerate deductions related to capital investments, research and development activities, and modifications to the interest expense limitation. The best utilization of these provisions offers multiple implementation pathways, and choices made regarding one provision may materially affect outcomes in others. As such, financial modeling is recommended to identify optimal strategies.
While the new tax legislation does not fundamentally change the considerations surrounding entity selection, it does introduce additional avenues to structure business opportunities and investment activities in a more tax-efficient manner. Below, we explore the most significant provisions of the bill and how they correspond with effective year-end planning and strategy for privately held companies.
Section 179 & Bonus Depreciation
Section 179: One of the most powerful tools for private-company owners is Section 179. Under the OBBBA, the deduction limit has been significantly increased to a new limit of $2.5 million for qualifying property. The new law phases out the allowance dollar for dollar by the amount of qualifying property exceeding $4 million.
Bonus Depreciation: The OBBBA reinstates 100% bonus depreciation for qualified property, placed in service after January 19, 2025. This provision departs from the Tax Cuts and Jobs Act, where there will no longer be phase-down schedules. The deduction will be permanent.
NEW Qualified Production Property (QPP): Additionally, for manufacturing and production businesses, the legislation extends this 100% immediate expense to qualified production property (QPP). QPP is limited to nonresidential real property and must be used as an integral part of a “qualified production activity,” which is defined as the manufacturing, production, or refining of a “qualified product”. Commonly excluded uses would be office, administrative, engineering, research, software development, and sales operations. Construction must start after Jan. 19, 2025, and before Jan. 1, 2029, with the property placed in service before Jan. 1, 2031.
Year-End Strategy:
Bonus Depreciation: The OBBBA reinstates 100% bonus depreciation for qualified property, placed in service after January 19, 2025. This provision departs from the Tax Cuts and Jobs Act, where there will no longer be phase-down schedules. The deduction will be permanent.
NEW Qualified Production Property (QPP): Additionally, for manufacturing and production businesses, the legislation extends this 100% immediate expense to qualified production property (QPP). QPP is limited to nonresidential real property and must be used as an integral part of a “qualified production activity,” which is defined as the manufacturing, production, or refining of a “qualified product”. Commonly excluded uses would be office, administrative, engineering, research, software development, and sales operations. Construction must start after Jan. 19, 2025, and before Jan. 1, 2029, with the property placed in service before Jan. 1, 2031.
Year-End Strategy:
- Review and accelerate any planned capital expenditures before year-end.
- Analyze if cost segregation studies would yield accelerated depreciation deductions.
- Review capital expenditures placed in service before Jan. 19, 2025, to see if Section 179 can be leveraged for those specific assets.
- Work with your BMF Advisor to model whether Section 179 or bonus depreciation yields a bigger outcome while factoring in your income, entity type, and taxable income limitations.
Research and Development Expensing
One of the most impactful changes in the OBBBA is the restoration of immediate expensing for U.S. based research and development (R&D) costs. Prior law required businesses to capitalize and amortize R&D expenditures over five years (or fifteen years for foreign research), significantly increasing taxable income for innovation-driven companies.
The OBBBA reverses this requirement for domestic R&D activities, allowing companies to deduct these costs in the year they are incurred, or they can elect to continue to amortize these expenditures. There are also opportunities to retroactively apply these provisions or accelerate prior unamortized deductions. This shift provides a powerful planning lever for private-company owners who invest in product development, process improvements, testing, design, engineering, or software creation.
Year-End Strategy:
The OBBBA gives taxpayers a transitional option: they can choose to claim any unamortized domestic R&D costs incurred, either entirely in their first tax year beginning after 2024 or spread out evenly over their first two tax years beginning after 2024.
Additional relief is available to eligible small business taxpayers who can elect to file amended returns to claim full deductions for domestic R&D costs for tax years before 2025.
If you have upcoming research and development projects, such as prototyping or software development, think about accelerating those expenses into the current tax year.
Immediate expensing does not replace the R&D tax credit – businesses may still be eligible for significant credits for qualified activities. For small businesses, certain credits may even be applied against payroll taxes. Work with your BMF Advisor to coordinate the timing of expenditures to maximize both the deduction and the credit.
While the deduction is generous, the IRS requires clear documentation to substantiate qualified R&D activities. Make sure you maintain:
Strengthening documentation throughout the year is essential for safeguarding the deduction or credit calculations.
The OBBBA reverses this requirement for domestic R&D activities, allowing companies to deduct these costs in the year they are incurred, or they can elect to continue to amortize these expenditures. There are also opportunities to retroactively apply these provisions or accelerate prior unamortized deductions. This shift provides a powerful planning lever for private-company owners who invest in product development, process improvements, testing, design, engineering, or software creation.
Year-End Strategy:
- Analyze the ability to claim unamortized domestic R&D expenditures.
The OBBBA gives taxpayers a transitional option: they can choose to claim any unamortized domestic R&D costs incurred, either entirely in their first tax year beginning after 2024 or spread out evenly over their first two tax years beginning after 2024.
- Eligible small business taxpayers can retroactively apply these provisions.
Additional relief is available to eligible small business taxpayers who can elect to file amended returns to claim full deductions for domestic R&D costs for tax years before 2025.
- Accelerate R&D Efforts Before Year-End
If you have upcoming research and development projects, such as prototyping or software development, think about accelerating those expenses into the current tax year.
- Explore R&D Tax Credits as a Companion Benefit
Immediate expensing does not replace the R&D tax credit – businesses may still be eligible for significant credits for qualified activities. For small businesses, certain credits may even be applied against payroll taxes. Work with your BMF Advisor to coordinate the timing of expenditures to maximize both the deduction and the credit.
- Review Documentation Practices for R&D credit
While the deduction is generous, the IRS requires clear documentation to substantiate qualified R&D activities. Make sure you maintain:
- Project descriptions and objectives
- Time-tracking for technical employees
- Vendor invoices for research-related services
- Prototypes, test results, or development logs
Strengthening documentation throughout the year is essential for safeguarding the deduction or credit calculations.
Section 163(j) Interest Expense Limitation
The OBBBA made several important adjustments to Section 163(j) – the rules that limit the deductibility of business interest expense. For private-company owners, understanding these updates is essential, especially given how closely 163(j) interacts with depreciation, amortization, and claiming R&D amortization.
The OBBBA restores the calculation on limitations of adjusted taxable income to incorporate addbacks for depreciation and amortization. This significantly increases the interest-deduction capacity for many companies.
Taxpayers electing to accelerate their past unamortized R&D expenditures will continue to classify these expenditures as an amortization expense. In these cases, the increase in deductible amortization effectively raises EBITDA under the restored rules and may further expand your ability to deduct interest under Section 163(j).
Year-End Strategy:
The OBBBA restores the calculation on limitations of adjusted taxable income to incorporate addbacks for depreciation and amortization. This significantly increases the interest-deduction capacity for many companies.
Taxpayers electing to accelerate their past unamortized R&D expenditures will continue to classify these expenditures as an amortization expense. In these cases, the increase in deductible amortization effectively raises EBITDA under the restored rules and may further expand your ability to deduct interest under Section 163(j).
Year-End Strategy:
- Model Interest Deductibility Using Revised EBITDA Rules
With a revised calculation, private-company owners should revisit their expected interest-deduction capacity. Many companies that were previously limited may now deduct more or free up prior-year carryovers.
- Combine R&D Expensing with Capital Investments
Capital expenditures benefiting from 100% bonus depreciation or Section 179 can improve future earnings and cash flow, while current-year R&D deductions help offset taxable income. This balance often creates an optimal environment for interest deductibility.
- Revaluate Financing Strategies for Growth
With a more generous 163(j) framework, debt-financed expansion – especially in innovation-driven sectors – may be more attractive than in prior years. Businesses considering acquisitions, facility expansion, or equipment upgrades should revisit financing models.
Additional Planning Opportunities
- Qualified Business Deduction: While not new, the 20% qualified business income (QBI) deduction is now permanent. Since the QBI deduction is sensitive to overall taxable income, business owners may consider deferring income into the next year or accelerating deductions to stay within optimal thresholds.
- Qualified Small Business Stock: While there is a large volume of specific requirements for qualified small business stock under §1202, the OBBBA made favorable adjustments to the percentage of gain exclusion. The exclusion will be 50% if it is held for three years, 75% if held for four years, and 100% if held for five years or longer. The limit on the exclusion is increased to $15 million or 10 times the adjusted basis in the stock, and the limit on gross assets at the time stock is issued is increased from $50 million to $75 million.
- Advance payments: Taxpayers receiving advance payments – such as upfront consideration for goods or services – may be required to recognize the income in the year of receipt. However, taxpayers may elect to defer recognition of a portion of such payments to the subsequent taxable year, provided the deferral does not extend beyond the end of the year following the year of receipt. Proper documentation and consistent method application are critical to sustaining the deferral position.
- Recurring liabilities: Certain liabilities – including taxes, warranty costs, rebates, allowances, and product returns – are generally deductible only in the year in which they are paid. Nevertheless, the recurring item exception may allow taxpayers to accelerate deductions into the current tax year if economic performance occurs within 8½ months after year-end and all other criteria are satisfied.
- Prepaid expenses: Taxpayers may deduct certain prepaid expenses when paid, rather than capitalizing and amortizing them over the benefit period, provided the right or benefit does not extend beyond the earlier of (i) 12 months after the effective date, or (ii) the end of the following taxable year. Taxpayers should confirm that each prepaid arrangement meets the regulatory requirements to support immediate expensing.
- Worthless inventory: Taxpayers may accelerate deductions for inventory that becomes obsolete, damaged, defective, or no longer required for business operations by disposing of or scrapping the inventory before year-end. Additionally, taxpayers may write down the cost of “subnormal goods” still on hand at year-end to their bona fide selling price, less direct disposition costs.
- LIFO: Although not a new strategy, adoption of the Last-In, First-Out (LIFO) method can materially increase the cost of goods sold in inflationary environments, thereby reducing taxable income. Taxpayers must comply with conformity requirements and maintain detailed inventory pools. Given ongoing IRS scrutiny, taxpayers should evaluate whether their inventory management and financial reporting processes support LIFO adoption or continued utilization.
- IC-DISC: Businesses with qualifying export sales may benefit from utilizing an Interest Charge-Domestic International Sales Corporation (IC-DISC) return. An IC-DISC allows a portion of export-related income to be recharacterized as a dividend taxed at long-term capital gains rates, creating a permanent tax benefit. Establishing and maintaining an IC-DISC requires adherence to strict operational, documentation, and commission-calculation rules; therefore, taxpayers should conduct a feasibility assessment to determine whether the anticipated benefits justify the compliance obligations.
These are just a few of the proactive, year-end tax strategies available to help you minimize your overall tax liability. Each taxpayer’s situation is unique, and the effectiveness of each strategy depends on your specific circumstances, business operations, and long-term financial objectives. Our team has extensive experience in evaluating and implementing tailored tax planning solutions, ensuring that opportunities highlighted above are best maximized.
If you would like to explore any of the strategies mentioned above, review their applicability to your current tax position, or discuss the potential impact of recent and upcoming tax law changes, we encourage you to reach out. Our advisors can work with you to develop a comprehensive, customized year-end tax plan designed to align with your short- and long-term goals. Contact your BMF Advisor to schedule a tax planning strategy session, request an in-depth review of your tax situation, or address any questions you may have regarding compliance, documentation, and the practical implementation of these tax-saving opportunities.
Devon LaRiccia?>
CPA
Manager, Taxation Services
330.255.2498
dlariccia@bmf.cpa
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