Take Charge of 2025 with Proactive Year-End Planning for Business Owners

Year-end isn’t just about closing the books—it’s about opening doors to new opportunities. Now is the time to take a forward-thinking approach to your business tax strategy, cash flow management, and overall financial planning.

Click the first link to read our breakdown of 10 areas for businesses to focus on—offering a blend of context, insights, and actionable steps to ensure your year-end planning is effective and forward-looking.

1. Capitalize on Estate Tax Exemptions Before Changes in 2026

With the provisions of the Tax Cuts and Jobs Act (TCJA) set to expire at the end of 2025, estate and gift taxes represent one of the most significant areas of impact. The current federal estate and gift tax exemption—$13.61 million per individual in 2024—will be cut nearly in half to approximately $6 million starting in 2026. This reduction creates a narrow window for proactive planning in 2024 to maximize the higher exemption and implement tax-saving strategies before the change. Acting now can help safeguard your legacy and minimize future tax liabilities.

Key Considerations for 2024 Estate Planning:

• Capitalize on Higher Exemptions: Use the elevated exemption limit in 2024 to transfer significant wealth to heirs or trusts tax-free, reducing the taxable value of your estate before the exemption shrinks in 2026.
• Implement Strategic Gifting: Making substantial gifts now allows you to take advantage of the current exemption without waiting for its reduction. This is particularly beneficial for high-value estates.
• Use Valuation Discounts: Valuation discounts, ranging from 10 to 45%, can lower the value of transferred business interests, thus reducing gift or estate transfer taxes when certain criteria are met. The most common discounts used in privately-held business transfers are for lack of marketability and lack of control.
• Establish Irrevocable Trusts: Trusts like Spousal Lifetime Access Trusts (SLATs) or generation-skipping trusts can help shift assets out of your estate while maintaining flexibility and control for beneficiaries.
• Plan for Appraisals: Accurate valuations are critical for gifts involving businesses or real estate. Start early to ensure appraisals are completed in time for gifting.

Act now: Waiting until 2025 may limit your options and expose more of your estate to higher taxes. Earlier this year, we published an article by Tax Partner Preston Osbourn II, CPA, on this topic. Click here to read Maximize Your Estate Plan: Capitalize on Estate Tax Exemptions Before 2026 Changes.

2. Tax Accounting Methods: Fine-Tune Your Approach

Your accounting methods determine how and when your business recognizes income and expenses, making them a powerful tool for managing taxes and cash flow. Adjustments now can deliver significant benefits, whether you’re aiming to lower your current tax bill or prepare for future growth.

• Accelerate Deductions: Bring forward deductions for accrued bonuses, prepaid expenses, or inventory write-offs to reduce taxable income in 2024.
• Defer Income Recognition: Push revenue recognition into 2025 when possible, delaying taxable income and improving this year’s cash flow.
• IRS Compliance: Avoid last-minute stress.  Start the process now to determine if changes require IRS approval and the filing of Form 3115 by December 31, 2024. 
• Consider Long-Term Goals: Evaluate how current tax proposals or potential changes from the 2024 elections might influence your strategy.

Action Step: Meet with your tax advisor to identify accounting method changes that align with your financial goals and ensure timely filing for IRS approval.

3. Research and Development Costs: Adapting to New Rules

Recent changes require businesses to capitalize and amortize research and development (R&D) costs over multiple years rather than deducting them immediately. While this may impact cash flow, proactive planning can help you adapt to the new rules.

• Track R&D Expenses: Accurately categorize all qualifying expenses to comply with capitalization requirements.
• Amortization Strategy: Understand how spreading these costs over five or 15 years affects your long-term tax position.
• Plan for Tax Credit Opportunities: Investigate federal and state R&D tax credits that can help offset some of these costs.

Action Step: Work with your tax advisor to evaluate how these changes impact your bottom line and explore opportunities to maximize available credits.

4. Depreciation and Fixed Asset Planning

The rules for depreciating fixed assets are shifting, creating opportunities to make the most of your investments. Whether purchasing equipment, upgrading facilities, or maintaining existing assets, reviewing your options can help you maximize deductions.

• Bonus Depreciation: For assets placed in service in 2024, bonus depreciation drops to 60%. Plan major purchases accordingly to benefit before the percentage phases out further.
• Section 179 Expensing: Deduct the full cost of qualifying purchases like vehicles and equipment in the year they are acquired.
• Repairs vs. Improvements: Reclassify expenses where possible. Repairs, unlike capitalized improvements, often qualify for immediate deductions.

Action Step: Conduct a year-end review of your fixed assets to identify items that qualify for deductions or expensing under the latest tax rules.

5. State and Local Tax (SALT): Don’t Overlook Regional Opportunities

State and local tax compliance is increasingly complex, but careful planning can help avoid surprises and uncover savings.

• Pass-Through Entity Tax (PTET) Elections: Many states now allow pass-through businesses to elect to pay taxes at the entity level, bypassing the federal $10,000 SALT deduction cap. Before electing, model the impact on your overall tax position and that of your individual partners.
• Property Tax Assessments: Verify that your property is accurately assessed and appeal overvaluations to reduce your tax liability.
• Sales and Use Tax Compliance: Ensure your business meets state-specific requirements, especially if you sell remotely or operate in multiple jurisdictions.

Action Step: Work with your tax advisor to model potential savings from PTET elections and ensure compliance with evolving SALT regulations.

6. Employee Benefits and Wellness Plans: Plan for New Rules

Updates to retirement and wellness benefit rules mean businesses need to prepare now to stay compliant.

• Long-Term Part-Time Employees eligibility for 401(k) plans: Starting in 2024, employees working at least 500 hours annually for three consecutive years must be allowed to contribute. Confirm that your systems and processes are ready to handle this change.
• Wellness Plans Compliance: The IRS scrutinizes wellness plans that misclassify personal expenses as deductible medical costs. Review your offerings to ensure they meet IRS standards.

Action Step: Collaborate with HR and plan administrators to align your benefits with the latest requirements and avoid costly penalties.

7. IRS Expands E-Filing Requirements

Starting in 2024, businesses filing 10 or more tax returns annually must file electronically. This affects forms like W-2s, 1099s, and even retirement plan forms.

• Work with your IT and accounting teams to ensure you have the right systems in place.
• Missing this requirement could result in penalties, so make compliance a priority.

8. Partnerships: Keep Up with New IRS Scrutiny

The IRS has increased scrutiny of partnerships, particularly around transactions that shift tax benefits.

• Basis Shifting: Avoid transactions that artificially inflate the value of assets for tax advantages.
• Expanded Form 8308 Reporting: Partnerships must report more detailed information on interest sales involving inventory or receivables.
• SECA Tax Exemption: Limited partners must meet strict IRS definitions to qualify for self-employment tax exemptions.

Action Step: Review your partnership agreements and tax positions to ensure compliance with the latest IRS rules.

9. Online Sales and PL 86-272 Protections

States are tightening rules on exemptions for businesses selling online under Public Law 86-272, potentially increasing your state income tax exposure.

• Interactive Websites: Businesses with customer-facing, interactive websites may no longer qualify for protection under the law.
• Structural Adjustments: Evaluate your operations to minimize state tax liabilities if exemptions no longer apply.

Action Step: Consult your tax advisor to assess your exposure and develop a plan to address any new tax liabilities proactively.

10. Beneficial Ownership Information (BOI) Reporting

UPDATE: As of 12/4/2024, this requirement has possibly changed. Watch for updates from our team.

Starting January 1, 2025, many businesses are required to file Beneficial Ownership Information Reports (BOIR) as mandated by the Corporate Transparency Act. This federal law aims to enhance transparency and combat financial crimes by requiring companies to disclose information about individuals with significant control or ownership.

• Determine Reporting Obligations: Identify if your business is subject to BOIR requirements. Generally, corporations, LLCs, and similar entities must comply, while certain exemptions apply.
• Gather Necessary Information: Collect details of beneficial owners, including names, birth dates, residential addresses, and government-issued identification numbers. A copy of identification documents is also required.
• Prepare for Filing Deadlines: For companies existing before January 1, 2024, the initial BOIR must be filed by January 1, 2025. Entities formed on or after January 1, 2024, have 90 days from formation to file.
• Understand Penalties for Non-Compliance: Failure to file or inaccuracies can result in civil penalties of up to $591 per day and potential criminal fines.

Action Step: If you haven’t already, schedule a meeting with your legal counsel to confirm your reporting obligations, compile required owner information, and develop a plan to meet filing deadlines.

Grimbleby Coleman Advisors & Accountants does not file these reports, but we are happy to help direct you to the resources needed to complete your filings. Our recent article by Tax Manager Jamee Bollinger, CPA, goes into more detail about BOIR. Click here to read Get Ready for BOI Reporting on Jan 1: Find Out if Your Company Must File.

The Bottom Line

Year-end tax planning is about making smart, informed decisions to protect your cash flow and reduce your tax burden. By starting now, you can position your business for a more profitable 2025. If you have questions or need personalized advice, contact the Grimbleby Coleman team. We’re here to help you plan well and make the most of your opportunities.

Looking for more detailed information, not covered here? Check out the Full 2024 Year-End Tax Planning Guide for Businesses from BDO.