Year-End Tax Planning for Businesses

After a relatively mild year for tax changes, future policy stands at a crossroads—with a confluence of expiring tax provisions, a new administration, and evolving economic factors that will shape the decisions of businesses and individual taxpayers alike.

There are steps you can take before year-end to stay well-positioned even amid uncertainty. Capitalizing on tax-friendly provisions while they remain in place and running projections for various tax outcomes could help you anticipate these changes and prepare with confidence. 

Here’s a look at some important year-end insights, opportunities, and reminders for 2024 and beyond.

Deadline for New Corporate Transparency Reporting

The Jan. 1, 2025 deadline for initial filings under the Corporate Transparency Act (CTA) is approaching. This new law requires millions of US privately-owned non-exempt corporations, limited liability companies, and limited partnerships to disclose information about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN), aiming to promote transparency and prevent financial crime. 

Planning tip: Fines for noncompliance can be up to $500 per day (up to a maximum of $10,000) and imprisonment for up to two years. Due to the strict filing requirements and expensive penalties, owners should consult with legal advisors to ensure compliance and avoid any violations.

Expiring Tax Provisions

Over thirty key provisions out of the 124 in the TCJA are slated to expire at the end of 2025, creating a ripple effect that could set other tax changes in motion. While some of these may get extended or made permanent, waiting to plan or remaining idle could be costly. 

Phasedown of Bonus Depreciation 

For years, bonus depreciation has encouraged businesses to invest in new equipment and property by allowing them to deduct the full cost of eligible assets in a single tax year, rather than spreading the depreciation over multiple years. The TCJA phases down this benefit by 20 points each year, currently set at 60 percent for property placed in service in 2024 and 40 percent for property placed in service during 2025, with it scheduled to fully expire after 2026. 

Additionally, the TCJA expanded eligibility to include bonus depreciation on the step-up in value when buying a partnership interest to accelerate deductions. Before finalizing any transaction, it's important to review the final rules to see if a step-up can be created, determine how much expensing is possible, and understand the tax impact on the seller.

Planning Tip: To maximize the benefits of bonus depreciation, businesses should consider accelerating capital investments and exploring strategies like expensing under Section 179, cost segregation studies and repair analyses to optimize deductions.

SALT Cap Set to Lift

The $10,000 annual limit on state and local tax (SALT) deductions is planned to be lifted at the end of 2025. Without congressional action, eligible taxpayers will be able to write-off 100 percent of their state and local taxes. If the cap remains in place, several states, including Arizona, have implemented elective workarounds that allow pass-through entities to pay taxes at the entity level to bypass the limit.

Planning Tip: Keep in mind that deducting pass-through entity taxes are typically deducted in the year you pay them, not when they're assessed. By strategically timing your tax payments, you may be able to maximize your deductions and minimize your tax liability by deferring payment when the cap expires. Also, consider how SALT deductions may impact future acquisitions and investment strategies. 

Modified Energy-Related Tax Credits 

The Inflation Reduction Act offers a number of tax credits for energy investments. For property placed in service in 2024, businesses can claim up to a 50 percent credit for solar, battery storage, geothermal, and other eligible energy property. Starting in 2025, the focus shifts to a technology-neutral credit, incentivizing projects that reduce greenhouse gas emissions.

Planning tip: The timing of your project’s construction start and placed-in-service date matters when determining which tax credit rules apply. To establish timing of whether your project qualifies under the old, modified, or new rules, ensure that it meets either the physical work test or the five percent safe harbor criteria.

Increased IRS Oversight

The IRS is ramping up oversight across multiple taxpayer segments—including corporations, partnerships, and high-net-worth individuals—by leveraging advanced technology and targeted audit initiatives to address potential tax liabilities and ensure compliance in areas such as the research and development and employee retention credits.

Planning tip: Take action now to review your compliance strategies, ensure accurate reporting, and always consider proactive tax planning to tamp down audit risks. 

The Road Ahead

With the recent election results, some pieces of the tax policy puzzle are coming into focus, yet nothing is certain until pen hits paper, leaving taxpayers as uncertain as the rest of us about what’s to come. However, there’s plenty of opportunity to position your business favorably if you plan accordingly.

Contact your R&A advisor with any questions regarding your specific situation.