Year-End Tax Planning for Businesses and Individuals 2025

Dear Clients and Friends,
As 2025 draws to a close, recent federal tax legislation and IRS initiatives have brought important
changes that may impact your year-end planning. Below are key updates and planning
considerations for both businesses and individuals.

Key Business Planning Updates & Considerations

• Bonus Depreciation: 100% bonus depreciation for qualified property acquired after January
  19, 2025, allowing full expensing for qualifying property. Special rules apply for the
  acquisition date under a written binding contract.
• Bonus Depreciation for Qualified Production Property: Introduces a new 100% expensing
  provision for “qualified production property” (QPP), which is a portion of nonresidential real
  property used as an integral part of a qualified production activity (manufacturing,
  agricultural, chemical production, or refining).
• R&D Expenses IRC Section 174: Immediate expensing of domestic research and
  experimental expenditures is allowed for tax years beginning after December 31, 2024.
  Foreign research & experimental expenditures must still be amortized over 15 years. Small
  taxpayers may qualify to retroactively expense domestic 174 costs.
• Section 163(j) Interest Limitation: For tax years beginning after 2024, the interest
  limitation calculation reverts to an EBITDA-based approach, increasing the allowable
  deductible interest by adding back depreciation, amortization, and depletion. For years after
  2025, the limitation is applied before interest capitalization, simplifying carry-forward
  tracking and potentially accelerating deductions.
• Section 179D Deduction: The energy-efficient commercial building deduction terminates
  for property whose construction begins after June 30, 2026, under the current law.
• Energy Credits: Several energy credits, including those for residential clean energy and
  efficiency credits, terminate or phase out after 2025 unless changed by future legislation.
  The clean vehicle credit, however, expired for vehicles acquired after September 30, 2025.
• C Corporation Charitable Limitation: For tax years beginning after December 31, 2025, C
  corporations may deduct charitable contributions only to the extent total contributions
  exceed 1% of taxable income (floor), and only up to 10% of taxable income (ceiling).
  Disallowed ceiling amounts may be carried forward for up to five years, but cannot be used
  to reduce taxable income below zero or increase NOL carryovers.
• QBID Wage & Property Limitations: For the Qualified Business Income Deduction,
  businesses should evaluate both the wage and property limitations. Review W-2 wage data
  and the unadjusted basis of qualified property for each business to maximize the deduction
  and avoid compliance issues.
• Accounting Methods: Businesses meeting the $31 million gross receipts test (up from $30
  million in 2024) can consider switching to a tax-deferred or simplified accounting method.
  These changes may help accelerate deductions, defer income, and streamline compliance,
  but eligibility rules must be reviewed.

Key Individual Planning Updates

• Standard Deduction & Itemized Deductions: For 2025, the standard deduction is $31,500 (joint), $23,625 (head of household), and $15,750 (single or married filing separately). The SALT deduction cap is $40,000 ($20,000 MFS), with a 30% phase-out per dollar for MAGI above $500,000 ($250,000 MFS), but not below $10,000. Consider bunching property tax and charitable payments into a single year to exceed the standard deduction, then taking the standard deduction in alternate years to maximize tax benefits.
• Estate and Gift Tax: The lifetime exemption is $13.99 million per individual ($27.98 million per married couple), and the annual gift tax exclusion is $19,000 per donee ($38,000 per couple)
• Charitable Contributions: There is no above-the-line charitable deduction for individuals in 2025; only itemizers can deduct charitable gifts, and only if total itemized deductions exceed the standard deduction. The above-the-line deduction resumes in 2026, where non-itemizers can deduct up to $1,000 ($2,000 for married filing jointly) for cash contributions. Consider bunching deductions in 2025 or deferring gifts to 2026 to maximize tax benefits.
• Qualified Charitable Distributions (QCDs): Retirees age 70½ or older can make QCDs of up to $108,000 per year directly from IRAs to qualified charities, reducing taxable income and satisfying RMDs, but not generating a charitable deduction. QCDs are especially valuable for those who do not itemize deductions.
• Harvesting Losses & Wash Sale Rules: Consider selling investments with losses to offset
  capital gains or up to $3,000 of ordinary income. To ensure losses are deductible, avoid the
  wash sale rules by not buying substantially identical securities within 30 days before or after
  the sale. Alternatives include waiting 31 days to repurchase or investing in similar—but not
  substantially identical—securities or funds.

Estimated Tax Payments

• Individuals: 2025 estimated tax payment due dates are April 15, June 16, and September 15,
  2025, and January 15, 2026. If you file your 2025 return and pay in full by January 31, 2026,
  the January 15 payment is not required. Farmers and fishermen may have special rules.
• Corporations: For calendar-year corporations, estimated payments are due April 15, June
  16, September 15, and December 15, 2025.
• Planning: Review your 2025 income, deductions, and credits to ensure estimated payments
  are sufficient to avoid penalties. Consider annualized income methods if your income is
  uneven.

PTET Elections

• PTET elections can still provide federal tax benefits in 2025 despite the higher $40,000 SALT
  cap. Elections are generally made annually by the original or extended due date of the state
  tax return, and timely estimated payments are often required. Monitor state-specific rules
  and compliance deadlines.

Other Important Updates

• Treasury Eliminates Paper Checks: Beginning with 2025 individual income tax returns, the
  U.S. Treasury will phase out paper refund checks, as required by Executive Order 14247.
  Taxpayers should ensure they have access to direct deposit, prepaid debit cards, or digital
  wallets. Limited exceptions apply for those without electronic banking access.

Action Steps

We recommend reviewing your tax situation now to take advantage of these opportunities and
ensure compliance. Please contact us to discuss how these changes may affect your specific
circumstances and to develop a tailored year-end strategy.

Sincerely,
Melton & Melton, L.L.P.