Many businesses push tax planning to the last quarter of the year, missing key opportunities along the way. Decisions made earlier can shape a stronger financial outcome, giving businesses more control over deductions, cash flow, and overall tax liability.
Mid-year offers a chance to refine strategies, adjust to tax law changes, and take advantage of deductions before deadlines approach. Waiting limits options, while acting now creates flexibility. Shifting business needs and updated tax rules can either work for you or against you, depending on how soon you prepare.
Reviewing retirement contributions, depreciation strategies, and tax credits now can lead to meaningful savings when it matters most. In the end, plan early, save more. Wait too long, pay more.
Key Tax Law Changes Affecting Businesses in 2025
Money moves fast, and so do tax laws. They shape business decisions, cash flow, and long-term growth. And in 2025, new tax laws are shifting the way businesses manage expenses, deductions, and compliance. Those who plan now can take advantage of new credits, navigate legislative changes smoothly, and position themselves for financial success.
Modifications to Deductions and Credits
Key deductions and credits have undergone notable changes:
- Bonus Depreciation and Section 179 Expensing: Under the Tax Cuts and Jobs Act (TCJA), 100% bonus depreciation was available through 2022. Starting in 2023, this benefit began phasing out by 20% annually. For 2025, the bonus depreciation rate is 40% for qualifying property placed in service during the year. This reduction impacts the timing and amount of deductions businesses can claim for capital investments, influencing decisions on asset purchases and tax planning strategies.
Section 179 expensing remains available, allowing businesses to immediately deduct the full cost of qualifying property, subject to annual limits. For 2025, the maximum deduction is $1,160,000, with a phase-out threshold of $2,890,000. These figures are adjusted annually for inflation.
- Research & Development (R&D) Tax Credit: While the R&D credit itself has not been expanded to cover additional industries, significant changes have been made to the reporting requirements. The IRS has introduced a revised Form 6765 for tax year 2025, which includes new sections requiring more detailed qualitative and quantitative information about research activities and expenses. Taxpayers must now provide descriptions of business components, employee roles, and specific research activities, enhancing transparency and compliance.
- Small Business Health Care Tax Credit: For 2025, the Small Business Health Care Tax Credit continues to be available for eligible small employers. To qualify, businesses must have fewer than 25 full-time equivalent employees, pay average annual wages below $66,600, and cover at least 50% of employees’ health insurance premiums. The credit can be up to 50% of the premiums paid, offering substantial tax relief for qualifying companies.
IRS Compliance Updates
The IRS has introduced new compliance requirements to enhance tax administration:
- Digital Tax Filing Requirements: Starting in 2025, businesses filing 10 or more returns are required to submit them electronically instead of by mail. This threshold, reduced from the previous 250-return limit, applies to the aggregate total of various forms, including W-2s, 1099s (such as 1099-MISC, 1099-NEC, 1099-K), and others. The change aims to enhance efficiency and accuracy in tax filings.
- Beneficial Ownership Information Reporting: Under the Corporate Transparency Act, the original requirement for most U.S.-based entities to file a Beneficial Ownership Information (BOI) report with the Financial Crimes Enforcement Network (FinCEN) has changed. As of the latest update, only foreign reporting companies are required to file a BOI report. U.S. companies and U.S. persons are no longer subject to this reporting obligation. Businesses should continue monitoring FinCEN guidance, as regulations around ownership transparency continue to evolve.
- 1099-K Reporting Threshold: The IRS has implemented a phased reduction in the reporting threshold for Form 1099-K. For calendar year 2024, third-party settlement organizations (TPSOs) are required to issue a 1099-K for transactions exceeding $5,000. This threshold decreases to $2,500 for 2025 and will further reduce to $600 in 2026 and subsequent years. Businesses and individuals receiving payments through platforms like PayPal or Venmo should be aware of these changes to ensure proper income reporting and avoid potential discrepancies.
Businesses that fail to adapt risk penalties or missed deductions. Mid-year presents the perfect time to review these updates, work with a tax advisor, and refine tax strategies to minimize liabilities before year-end.
How to Leverage Tax Credits and Deductions in 2025
The right tax credits and deductions can reduce liability and free up cash for growth, but too many businesses overlook what’s available. Mid-year is the perfect time to identify and apply these savings before it’s too late.
Tax Credits Worth Claiming
Certain tax credits directly lower the amount owed, making them some of the most valuable tools in a business’s tax strategy. Here are a few that deserve attention:
- Research & Development (R&D) Tax Credit – The R&D credit remains one of the most valuable incentives for businesses investing in innovation, product development, or process improvement. Qualifying activities include software development, prototyping, engineering work, and improving production techniques. While the core rules for eligibility remain unchanged in 2025, the IRS has introduced expanded reporting requirements.
The updated Form 6765 requires businesses to provide more detailed descriptions of qualifying activities, employee involvement, and associated expenses. These changes increase documentation demands, but the credit remains a meaningful offset against income or payroll taxes, particularly for startups and manufacturing firms.
- Energy Efficiency Incentives – Businesses making eco-friendly upgrades, such as installing solar panels, improving insulation, or switching to energy-efficient HVAC systems, may qualify for federal and state tax credits. The Inflation Reduction Act extended many of these incentives, making them more lucrative than ever.
- Work Opportunity Tax Credit (WOTC) – Hiring employees from certain target groups, such as veterans or long-term unemployed individuals, can result in significant tax savings. This credit can be worth up to $9,600 per qualified employee, making it a great way to offset hiring costs.
Deductions That Often Get Missed
Unlike credits, deductions lower taxable income, but they’re only effective if businesses claim them. Some key deductions that go unnoticed include:
- Qualified Business Income (QBI) Deduction – Eligible pass-through entities such as S corporations, partnerships, and sole proprietorships may deduct up to 20% of qualified business income. However, this deduction is scheduled to sunset after December 31, 2025. For service-based businesses, eligibility begins to phase out once the owner’s taxable income exceeds roughly $400,000. Accelerating income into the current year may present a planning opportunity for those likely to lose access in future years. Mid-year reviews can help service providers manage income levels to preserve this benefit.
- Home Office Deduction – Although more businesses are operating remotely, the home office deduction remains underutilized and closely scrutinized. The IRS requires that the space be used exclusively and regularly for business. While available, this deduction is approached cautiously, especially given the audit risk associated with personal-use overlap.
- Bad Debt Write-Offs – Businesses owed money from customers may be eligible to write off bad debts, but only when the debt is deemed entirely worthless. To meet this threshold, businesses must document collection attempts and clearly show that the amount will not be recovered. Partial write-downs do not generally qualify. This deduction is especially relevant for accrual-based businesses holding aging accounts receivable.
Maximizing These Benefits Before Year-End
- Conduct a mid-year tax review – Work with a tax advisor now to ensure you’re on track to claim all available credits and deductions. Waiting until December limits your ability to make strategic moves.
- Make necessary purchases before December 31 – If your business plans to invest in capital assets, such as equipment, software, or energy-efficient improvements, ensure those assets are both purchased and placed in service by December 31 to qualify for Section 179 expensing or bonus depreciation. Timing matters, especially as bonus depreciation continues to phase down.
- Keep detailed records – The IRS is tightening compliance on tax credit claims, particularly R&D and energy incentives. Proper documentation, including receipts, payroll reports, and business use logs, can prevent costly audits or denied claims.
Taking advantage of these tax-saving opportunities requires action, not just awareness. Businesses that leverage mid-year planning can lower their tax bill and keep more money where it belongs.
The Importance of Retirement Plan Contributions for Tax Savings
Simply put, retirement plans are a powerful tax-saving tool. Employer-sponsored plans like 401(k)s, SIMPLE IRAs, and SEP IRAs allow businesses to deduct contributions while helping employees build wealth. Mid-year is the perfect time to adjust contributions and maximize savings before year-end.
How Mid-Year Contributions Lower Taxes
- Reduce Taxable Income – Contributions lower adjusted gross income (AGI), which may unlock additional deductions or credits.
- Maximize Contributions – 401(k) limits for 2025 are $23,000, plus a $7,500 catch-up for those 50+. A special provision beginning in 2025 allows those aged 60–63 to make a higher catch-up contribution, indexed for inflation. Business owners may contribute as both employee and employer, potentially deferring tens of thousands in taxable income.
- Reassess Cash Flow – Mid-year planning ensures contributions align with business finances, preventing last-minute scrambling in December.
Opportunities for Business Owners
- Solo 401(k) – Self-employed owners can contribute up to $69,000 ($76,500 with a catch-up).
- SEP IRA – Allows employer contributions up to 25% of compensation or $69,000, whichever is lower.
- Cash Balance Pension Plans – Ideal for high earners, allowing significant tax deferral with contribution limits exceeding $300,000.
Making retirement contributions a priority now can lead to major tax savings while strengthening financial security. Waiting until year-end limits flexibility, while planning ahead provides more control over cash flow and tax outcomes. Businesses that act now can take full advantage of these tax-efficient strategies and set themselves up for long-term success.
Planning for Changes in Business Depreciation Rules
Business owners looking to invest in equipment, vehicles, or technology should pay close attention to depreciation rules in 2025. Changes to Section 179 expensing and bonus depreciation could impact how much of these costs can be deducted, making mid-year planning essential.
Updates to Section 179 and Bonus Depreciation
- Section 179 Expensing – For tax year 2025, businesses can deduct up to $1,250,000 in qualifying property purchases under Section 179. This deduction begins to phase out once total asset purchases exceed $3,130,000. Section 179 allows for an immediate deduction of the full purchase price of eligible business equipment, such as machinery, vehicles, or software, so long as the asset is placed in service before December 31.
- Bonus Depreciation – The first-year bonus depreciation rate has decreased to 40% for 2025, down from 60% in 2024. This accelerated depreciation applies to new and used qualifying property, providing a significant (but diminishing) deduction opportunity. Since the phase-down will continue through 2026 and beyond, earlier purchases may offer more favorable tax treatment.
How to Maximize Depreciation Deductions
- Purchase Assets Before Year-End – To claim deductions for 2025, equipment, machinery, and other qualifying property must be placed in service before December 31.
- Consider Financing or Leasing – Section 179 allows deductions even if the asset is financed, preserving cash flow while still capturing tax benefits.
- Bundle Purchases – If equipment needs are growing, making multiple purchases in the same year can maximize deductions before bonus depreciation phases out further.
When to Upgrade Business Assets
- If Cash Flow Allows – Strong financials? Buying now locks in higher deductions before rules tighten.
- If Bonus Depreciation Matters – The percentage will keep dropping each year, making early investments more tax-efficient.
- If Equipment is Aging – Replacing outdated assets now could mean bigger deductions and lower maintenance costs.
Waiting to act could mean losing out on key tax savings. Businesses planning major purchases should move before year-end to take full advantage of these depreciation rules while they still offer significant benefits.
M&A Tax Planning: Stock vs. Asset Deals
Mergers and acquisitions present major opportunities, but the deal structure determines the tax impact. Buyers and sellers must weigh the differences between stock and asset deals to avoid unnecessary tax liabilities and maximize financial benefits.
Stock vs. Asset Deals: Key Differences
- Stock Deal – The buyer acquires the company’s stock, taking ownership of assets, liabilities, and tax history. Sellers benefit from lower capital gains tax rates, while buyers lose the ability to “step up” asset values for depreciation.
- Asset Deal – The buyer purchases specific business assets (e.g., equipment, real estate, intellectual property) while leaving behind liabilities. Buyers gain tax advantages through higher depreciation deductions, but sellers may face ordinary income tax on certain assets.
Tax Implications of Deal Structure
- Sellers Prefer Stock Sales – Capital gains treatment means lower tax rates and fewer post-sale liabilities.
- Buyers Favor Asset Purchases – A higher tax basis in acquired assets leads to increased depreciation deductions and long-term tax savings.
- Liability Exposure Matters – Stock deals transfer all existing tax obligations to the buyer, while asset deals allow buyers to avoid unwanted liabilities.
Preparing for a Business Sale
Business owners planning to sell should take steps now to optimize tax outcomes and maximize deal value. Key considerations include:
- Financial Clean-Up – Organizing financial statements, addressing outstanding liabilities, and ensuring tax compliance can make the business more attractive to buyers.
- Structuring for Tax Efficiency – Evaluating stock vs. asset sale implications early helps negotiate favorable terms.
- Timing the Sale – Timing impacts both purchase price and tax liability. A profitable year can boost valuation but may also trigger a higher tax bill. Thoughtful planning, like accelerating expenses, deferring income, or staging the sale in tranches, can help spread taxable gains over multiple years. Balancing strong financial performance with strategic income recognition is key to optimizing both deal value and after-tax proceeds.
Mid-Year M&A Tax Planning Strategies
- Assess Tax Consequences Early – Waiting until year-end limits deal structuring options.
- Consider Installment Sales – Spreading payments over multiple years can ease the seller’s tax burden.
- Maximize Depreciation Benefits – While buyers often prefer allocating a larger portion of the purchase price to depreciable assets to maximize post-sale deductions, sellers typically benefit from allocations that favor goodwill and intangibles. These amounts are generally taxed at capital gains rates, while allocations to fixed assets may trigger higher ordinary income rates.
The structure of an M&A deal can significantly impact long-term tax costs and financial outcomes. Beyond the sale price, factors like depreciation benefits, capital gains treatment, and liability exposure play a major role in determining whether a deal is truly beneficial. Taking the time now to structure the transaction correctly can mean the difference between a tax burden and a tax advantage.
Why You Need a Customized Tax Strategy for Your Business in 2025
No two businesses have the same tax situation. Industry, revenue, expenses, and long-term goals all influence the best approach to minimizing tax liability.
Tailored Planning Maximizes Savings
Tax laws change, and so do business needs. A manufacturer investing in equipment may benefit from depreciation deductions, while a tech startup could leverage R&D tax credits. A customized tax strategy ensures businesses take advantage of every opportunity while avoiding costly mistakes.
The Value of Expert Guidance
A tax advisor can analyze cash flow, industry trends, and financial goals to build a plan that reduces liabilities and improves financial flexibility. Mid-year is the ideal time to refine strategies, adjust deductions, and prepare for year-end decisions.
When you work with an advisory team like DHJJ, you’re positioning your business for growth, this year and beyond.
Take Action Before Year-End
Mid-year tax planning creates opportunities to lower liabilities, improve cash flow, and make informed financial decisions. However, waiting until the last quarter limits flexibility and can lead to missed deductions or higher tax burdens. Right now, businesses still have time to adjust contributions, maximize depreciation, and take advantage of available credits. Reviewing these strategies now provides room to act before deadlines approach.
A well-planned tax strategy protects profits and sets the stage for future growth. DHJJ’s team of expert CPAs and business advisors can help you navigate complex tax rules, uncover hidden savings, and build a strategy that works for you. Reach out to DHJJ today and take control of your tax strategy before the window closes.
The information provided herein reflects the current federal tax laws and regulations as of July 2025. However, ongoing legislative developments could result in changes to tax rules and provisions that may impact your business. We recommend consulting with a DHJJ tax advisor for the most up-to-date guidance tailored to your specific situation.
