Preparing for the 2025 Tax Cliff: Tips for Businesses

With the end of the tax year rapidly approaching, now is a good time for business owners to start thinking about their tax returns and planning accordingly. Proactive tax planning is especially important this year, as some provisions for businesses in the Tax Cuts and Jobs Act (TJCA) are slated to expire in the coming year.

With a little planning and foresight, business owners can take full advantage of remaining tax credits and deductions while planning for the future. In addition to some immediate actions that business owners can take towards the end of the tax year, there are also some long-term considerations to keep in mind.

Optimizing Employee-Related Tax Credits

First, business owners should make sure they are taking full advantage of any and all employee-related tax benefits, including:

• The Work Opportunity Tax Credit (WOTC) – This credit is available to businesses that prioritize hiring candidates from specific WOTC categories, including veterans and those on long-term disability. In addition to the tax credits that come along with these practices, businesses can also enjoy knowing they are making a difference in supporting underrepresented groups in their hiring processes.
• The Paid Family and Medical Leave Credit – For businesses that offer paid family and medical leave, there are also some substantial tax credits available. The key is to formally offer these benefits before the end of 2024 in order to claim the credits. In doing so, business owners could be entitled to claim tax credits on a portion of wages that are paid out to employees during their leave.

Maximizing Cash Flow Through Timing Adjustments

The end of the tax year is also a good time for business owners to review some of their tax-related timing adjustments. A little strategic planning can go a long way here, especially when it comes to optimizing cash flow.

More specifically, business owners should consider accelerating their income recognition into the current tax year—particularly if they expect their tax rates to increase in future years. Some businesses may benefit from making equipment and supply purchases before the end of the current tax year, especially if they plan to itemize deductions on their tax returns.

Handling Deduction Changes for Business Owners

Business owners should also be aware that after the 2025 tax year, some personal and business income tax brackets will be reverting to pre-TCJA structures. As a result, some business owners may find that their tax brackets are changing — even if their income has been relatively consistent in the last few years.

Now is a good time, then, for business owners to review their own income and tax brackets to mitigate potential tax increases. More specifically, some business owners may want to find strategic ways to lower their taxable income, such as contributing to retirement plans and taking applicable deductions.

Taking Advantage of Expiring Credits and Deductions

Speaking of the TCJA, many provisions of this act will be expiring during the 2025 tax year. As a result, this could be the last year for business owners to take advantage of certain deductions, credits and other tax advantages, including:

• Bonus depreciation – This will be the last year for the 60% bonus depreciation rate for businesses, so those who have been waiting to make major purchases or investments in technology and equipment may want to consider moving up their timelines to take advantage.
• R&E expenditures – For businesses that accumulate research and development expenses throughout the year, this could also be the last year to qualify for research and development credits at the state and federal levels (unless these provisions are extended). Taking advantage of this credit can help businesses enjoy immediate tax benefits.
• Qualified Business Income (QBI) deductions – Finally, businesses should maximize their QBI deductions for pass-through entities before the end of the tax year. This can be done through strategies like deferring expenses to stay within eligibility limits. There’s a good chance this credit will be changing in 2025 and beyond, so businesses won’t want to miss out this year.

Business Taxes Don’t Have to Be a Hassle

Handling business taxes and finding ways to maximize tax credits/deductions isn’t everybody’s cup of tea, which is why many businesses have dedicated tax professionals to help them navigate these complicated and ever-changing tax laws. For businesses looking for help in optimizing their credits and deductions in the coming year, now is the time to set up a consultation with a business tax planner or financial advisor. With just a little bit of foresight and strategic planning, businesses can set themselves up for success not just with their 2024 taxes, but in the coming years as well.

Contact us to help your business make the right year-end tax planning moves.