Key points covered in this article:

  • Bonus Depreciation and Section 179: OBBBA makes 100% bonus depreciation permanent and increases Section 179 expensing limits, offering significant tax-saving opportunities for equipment and property investments in 2025.
  • Charitable Contributions and Interest Deductibility: Businesses can maximize charitable deductions in 2025 before new 2026 rules take effect, while changes to interest deductibility under Section 163(j) allow larger deductions for interest expenses.
  • Year-End Tax Strategies: Timing income and expenses, leveraging clean energy credits, and reviewing PTET elections can help business owners optimize their 2025 tax position.

With only a short time left in the year, business owners are reviewing their 2025 results and looking for tax opportunities that can still be captured before the books close. The new tax laws under The One Big Beautiful Bill (OBBBA) changed several long-standing rules, especially around expenses, interest deductibility, and future charitable contribution limits. The list below highlights the key areas to look at in the final weeks of the year and the planning considerations that may affect overall tax liability.

Capture Available Tax Benefits Before Year-End

Bonus Depreciation

OBBBA makes 100% bonus depreciation permanent for qualifying property placed in service on or after January 19, 2025. This allows businesses to deduct the full cost of eligible equipment in the year it is first used. This can apply to a wide range of assets, such as machinery, vehicles, computers, and other business equipment. For example, a company that purchased a new machine earlier in the year may still claim the full deduction if the machine is installed and operating by December 31. Reviewing the status of recent purchases now can have an impact on whether the deduction falls in 2025 or moves to next year, so business owners will want to review cash flow needs carefully.

Note: State tax laws on depreciation expense often differ from federal laws. Most states do not fully conform to the new federal accelerated depreciation provisions.

Section 179 Expensing

The new law increases Section 179 expensing to $2.5 million, with phase-out beginning at $4 million. This expanded limit gives small and mid-sized companies more room to deduct the full cost of equipment, software, and certain improvements to nonresidential buildings, including roofs, HVAC systems, fire protection and alarm systems, and security systems. For businesses projecting higher taxable income than expected, accelerating qualifying purchases into December may strengthen their 2025 position. Owners may also want to compare Section 179 with bonus depreciation to determine which method provides the more favorable outcome.

R&D Expensing (Section 174)

OBBBA restores immediate expensing for domestic research and development costs beginning in 2025. Instead of spreading these costs over five years, businesses can now deduct the full amount in the year the work is done. This helps companies that invest in product development, software, engineering, or process improvements. Foreign research still has to be deducted over a 15-year time period.

The law also gives smaller businesses (those with average annual receipts of $31 million or less) the option to apply immediate expensing retroactively to 2022 and later years. This may create a refund or a larger deduction carried into 2025, depending on the company’s situation. This may also create additional administrative effort and the need to revisit prior-year returns, including the entity’s return and potentially the owner’s individual return (Forms 1120S and 1065).

For some businesses the benefit is significant; for others, the effort may outweigh the savings. As the year closes, companies may want to document any qualifying R&D work and talk with their advisors about whether the retroactive option is worth pursuing.

Clean Energy Credits Approaching Phase-Out Dates

Several clean energy incentives are expired or nearing expiration under the new law. Credits for new and used clean vehicles (Sections 30D and 25E) and commercial clean vehicles (Section 45W) expired on September 30, 2025. Other credits, including those for energy-efficient home improvements (Section 25C) and residential clean energy investments (Section 25D), expire on December 31, 2025. The popular Section 179D deduction is available only for projects beginning construction before June 30, 2026. As businesses finalize year-end plans, they will want to review any clean-energy-related purchases and any construction timelines to help capture benefits before they are no longer available.

Additional Year-End Planning Opportunities

Income and Expense Timing

Income and expense timing refers to when a business records revenue and when it pays deductible expenses, which determines the tax year they fall into. For cash-basis taxpayers, timing decisions matter because income billed in December counts for this year, while income billed in January counts for next year. The same applies to expenses: costs paid before December 31 can generally be deducted in 2025. Reviewing open invoices, planned expenses, and expected income can help businesses determine what to complete now and what offers more benefits when waiting until early 2026.

Accrual-basis taxpayers follow different rules on the deductibility of accrued expenses at year-end. Accrued expenses are deducted when they are incurred as long as they are paid within 2 ½ months of year end and any revenue is reported when earned regardless of when payment is exchanged.

Corporate Charitable Contributions

For 2025, C-corporations may deduct charitable contributions up to 10% of taxable income, and there is no minimum giving requirement. Beginning in 2026, a new 1% floor applies, meaning only the portion above 1% of taxable income will be deductible, while the 10% cap remains in place. A company donating 2% of taxable income next year, for example, may deduct only the second 1%. Because 2025 has no floor, some businesses may choose to complete planned contributions before year-end.

Interest Deductibility (Section 163(j))

OBBBA changes how the interest deduction is calculated for larger businesses beginning January 1, 2025 (>$31 million in gross receipts). Instead of using the more restrictive EBIT formula, businesses can now use a version that adds back depreciation and amortization, also known as EBITDA. This creates a larger income base for the calculation, which means many companies will be able to deduct more of their interest expense than they have been able to since 2022. This is helpful for businesses with a lot of equipment, property, or borrowing, particularly in construction and real estate, which tend to have leveraged projects.

Treatment of Electively Capitalized Interest

OBBBA also changes how capitalized interest works under Section 266. Through the end of 2025, some businesses may still elect to capitalize interest into the cost of inventory or other property; this allows the interest to bypass the Section 163(j) limit for this year. However, this exception applies only to electively capitalized interest. Companies that are required to capitalize interest must still treat that interest as business interest expense, and it remains subject to the Section 163(j) limitation.

Beginning in 2026, a new rule applies. The Section 163(j) limitation must be applied first, and only the interest that is not limited may be capitalized. This change applies to both elective and required capitalization and removes a planning opportunity that has been especially useful for real estate developers, manufacturers, and construction companies. Businesses using capitalization may want to review current projects to understand how the change will affect interest deductions in future years.

Other Considerations for Pass-Through Owners

Most states continue to offer PTET elections for 2025 and have extended them beyond this year. PTET allows state taxes to be deducted at the entity level rather than through the individual return. This matters because the individual SALT deduction is capped at $40,000 for 2025, and many owners will exceed that limit even with the temporary increase especially for those owners with AGI that exceeds $600,000. Treating state tax as a business expense often produces a larger federal deduction than itemizing, so some pass-through owners may want to revisit whether a PTET election is beneficial again for this year.

The 20% Qualified Business Income (QBI) pass-through deduction also remains fully available for 2025, and only minor adjustments begin in 2026. While the rules did not change this year, the deduction is based on net business income, so the same timing decisions, such as issuing a large invoice or paying a major expense in December, can change the final deduction amount.

Business owners may want to review other year-end items that relate to their individual taxes, such as retirement plan contributions, estimated tax payments, and the timing of bonuses or other pass-through income.

Heading into 2026

Business owners still have several tools available to influence taxable income and prepare for the upcoming tax season. Reviewing these topics can help leadership prioritize year-end decisions and position the business for a strong start to 2026. For questions about how these updates may affect your tax position, contact Charles Dean Smith, Jr. and Jennifer French, Partners on PBMares’ Tax team.