2025 Year-End Tax Planning Under OBBBA
2025 Year-End Tax Planning Under OBBBA: What Growing Businesses Should Know
At Vallou, we believe year-end is an opportunity, not a deadline. With the One Big Beautiful Bill Act (OBBBA) taking effect earlier this year, businesses now have a more stable tax landscape heading into 2026. As we close out 2025, this is the time to review key tax planning considerations and understand how recent changes may influence year-end decisions.
Key OBBBA Provisions That Matter for Year-End Planning:
The QBI Deduction Is Now Permanent
The Qualified Business Income (QBI) deduction allows many pass-through business owners to deduct up to 20 percent of their business income. Factors such as W2 wages, total taxable income, business activity, and tangible property all influence the calculation. With OBBBA removing the scheduled sunset, businesses can now plan around QBI with long-term certainty. Year-end is the right time to review compensation strategy, payroll timing, and projected 2026 income to strengthen the QBI position.
100% Bonus Depreciation Has Returned
Bonus depreciation allows businesses to immediately deduct the full cost of qualifying assets such as machinery, equipment, technology, and certain vehicles. Under OBBBA, 100% bonus depreciation is restored for eligible assets placed in service after January 19, 2025. Businesses considering equipment or technology purchases should evaluate whether placing assets in service before year-end will improve their 2025 tax position.
Section 174 Rules Have Been Updated Under OBBBA
Section 174 applies to costs related to research and experimental activities, engineering, product development, improvements to products or processes, and software development. These activities are common in many growing businesses.
OBBBA significantly updated how Section 174 costs are treated, and the rules now depend on where the research occurs.
Domestic R&E Expenditures: For tax years beginning after December 31, 2024, domestic research and experimental expenditures may once again be fully expensed in the year they are incurred. The prior requirement to amortize domestic research costs over five years is no longer mandatory for these years. Businesses may also have options for remaining unamortized domestic R&E costs from 2022 through 2024.
Foreign R&E Expenditures: Foreign research expenditures must still be capitalized and amortized, typically over 15 years. This distinction between domestic and foreign work is now more important for planning and tracking.
These changes create meaningful tax planning opportunities for businesses involved in product development, engineering, or software development.
Several Other Business Tax Provisions Were Extended
OBBBA renewed or preserved multiple business-related tax rules, giving companies greater stability for long-term planning. This supports more predictable modeling for 2026 and beyond, better capital expenditure planning, and a stronger foundation for financial strategy.
Year-End Planning Steps for Growing Businesses:
Review Income and Expense Timing
Depending on profitability and future plans, businesses may benefit from accelerating expenses, deferring or accelerating revenue, or evaluating how bonus depreciation impacts taxable income. These decisions can support cash flow and smooth trends entering 2026.
Reassess Owner Compensation Strategy
Because QBI is a long-term provision, compensation strategy remains a priority. Businesses should review reasonable compensation for S corporation shareholders, W2 wages, payroll timing, and wage levels relative to the QBI deduction.
Evaluate Capital Expenditures Before Year-End
Businesses planning early 2026 purchases should consider whether placing assets in service before year-end creates a stronger tax or operational position. Delivery timing, installation, state conformity rules, and expected 2026 profitability all factor into this decision.
Update Multi-State Nexus and Filing Exposure
Nexus refers to a business’s obligation to file and pay taxes in a particular state and can be triggered by remote employees, sales thresholds, physical presence, inventory, economic activity, or service delivery. As businesses grow, multi-state exposure often expands quickly. A year-end review of employee locations, sales activity, filing obligations, sales tax requirements, and apportionment changes can prevent compliance issues.
Review Section 174 Tracking and Prior-Year Costs
Even with the new ability to expense domestic R&E expenditures, businesses still need to confirm
How research-related activities were tracked
Whether any foreign research occurred
Whether expensing aligns with broader planning goals
How software development was categorized
How unamortized 2022 through 2024 R&E costs should be treated
Ensuring accurate tracking now helps prevent surprises during tax preparation and supports more flexible planning for 2026.
Next Steps for Your Business
If you would like to review your 2025 year-end tax position or explore planning opportunities under OBBBA, Vallou can help you understand your options and prepare for a strong start to 2026. To learn more or begin the conversation, visit vallou.com.