Top 5 Year-End Tax Planning Moves Before 2026: What Businesses & Individuals Should Know

Dec 01, 2025

As we approach the end of the year—and as major tax law changes begin to take effect—it’s critical for both businesses and individuals to take stock of evolving tax provisions. The recent updates from the 119th Congress, as detailed in William Vaughan Company’s 2025 Year-End Tax Planning Webinar, contain significant opportunities and pitfalls. Smart planning now can unlock growth, mitigate risks, and ensure you’re maximizing every available benefit.

Below, we break down the top 5 tax planning considerations you should address before 2026:

1. Leverage Bonus Depreciation and Expensing Changes – for businesses:

  • Immediate expensing is available for property with a class life of 20 years or less, placed in service after January 19, 2025.
  • Qualified Production Property: Eligible manufacturers who place qualifying real property in service between July 4, 2025 and December 31, 2030, may benefit from accelerated depreciation on this property. This property must meet several specific requirements in order to qualify.
  • State Tax Considerations: For certain states (Michigan in particular), Individuals and flow-through entities must use IRC rules as of 12/31/24 for bonus depreciation, which continues the planned phase-outs and limitations as outlined in the Tax Cuts and Jobs Act of 2017.

Action Step: Review capital expenditure plans now. Accelerate purchases or construction to maximize deductions under the current, more favorable rules.

2. Prepare for Beneficial Changes to Interest Expense Limitations
What’s changing:

  • Starting January 1, 2025, businesses subject to Section 163(j) interest expense limitations can calculate their amount of limited interest expense based on their EBITDA. Previously, Depreciation & Amortization could not be added back in this calculation, which resulted in less allowed interest expense.
  • Starting January 1, 2026 any interest capitalized as additional tax basis to an asset must be broken out of that assets depreciation and subjected to the 163(j) limitations as if it were not part of depreciation.
  • Michigan businesses: Recent decoupling from federal rules means separate treatment for business interest deductions.

Action Step: Conduct a Section 163(j) analysis to determine if upcoming changes in the limitations will impact your financing structure or projected taxable income.

3. Understand and Optimize Research & Experimental Expenditures (Section 174)
Significant changes to Section 174, governing Research and Experimental (R&E) expenditures, have a direct impact on businesses engaged in innovation, product development, or process improvement. Here’s what you need to know:

Recent Legislative Updates

  • Pre-2022: Businesses could elect to deduct R&E expenses in the year incurred.
  • 2022–2024: R&E costs had to be capitalized and amortized (generally over five years for domestic and fifteen years for foreign expenditures).
  • Post-2024 (Starting in 2025): Businesses may once again elect to deduct R&E expenses in the year incurred (except foreign expenses, which remain subject to 15-year amortization)

Strategic Planning Opportunities

  • Previously Amortized Costs Going Forward:
    • For 2025, all businesses can elect to expense all prior years unamortized R&E costs in the current year or choose to expense half in 2025 and the remaining half in 2026.
    • If your business has less than $31 million in gross sales on average over the last 3 years, the new law allows for amending prior returns. I.e. you may go back and expense R&E costs in the year they were incurred and claim refunds. The deadline to amend these returns is generally by July 6, 2026, a much shorter timeframe than typically allowed for amendments.
  • Michigan Decoupling:
    • The state now decouples from federal rules on Section 174A (R&E expenses), in addition to Section 163(j), Section 179, and bonus depreciation provisions (Sections 168(n) & 168(k)), after Michigan’s latest budget package passed (H.B. 4961, signed 10/7/25).

Action Steps for Businesses

  • Review your current and planned R&E activities.
    • Evaluate whether you should accelerate R&E spending into 2025 to maximize immediate deductions.
    • Determine if you are eligible to amend prior year returns and evaluate whether you should do so, in order to meet the fast-approaching deadline.
    • Coordinate with tax advisors to track eligible expenditures and ensure compliance with both federal and state rules.
  • Individuals & Flow-Through Entities:
    • Between section 174A, 163(j) and 168(k) taxable income may be down in 2025 compared to prior years. If you are an S-Corporation, be sure to consider your stock basis and the deductibility of losses when making key decisions for 2025.
    • Also consider making a Roth conversion to take advantage of lower tax brackets if income is lower due to 2025 tax law changes.

4. Maximize Individual Deductions and Credits Before Phase-outs
Standard deduction increases (effective 2025):

  • Single: $15,750
  • Married Filing Jointly: $31,500
  • Additional $6,000 for taxpayers 65+ (phase-outs apply).

Other highlights:

  • State and Local Tax (SALT) cap: $40,000 for 2025-2029, then drops to $10,000 in 2030 (phase-outs apply).
  • Mortgage insurance premiums: Deductible from 2026.
  • Charitable deduction for non-itemizers: Up to $2,000 for joint filers from 2026.
  • Child Tax Credit: Increased and inflation-adjusted.
  • Charitable donations for itemizers: Deductions will be limited for taxpayers in the maximum tax bracket of 37% at 35%. Donations will also be subject to a floor of 0.5% of the taxpayers taxable income beginning in 2026.

Action Step: Bunch deductions: Consider timing charitable giving, SALT payments, and other deductions to optimize their tax impact before stricter caps and limitations set in. Consider making large doner advised fund (DAF) donations in 2025 to take advantage of the deductions before the new limitations take effect.

5. Estate & Gift Tax Planning

  • Exemption increases to $15M in 2026 (from $13.99M in 2025).
  • Annual gifting limit: $19,000 in 2025, inflation-adjusted for 2026.
  • Portability remains for spouses.

Action Step: Review your estate plan: High-net-worth individuals should review gifting strategies and trusts now that we have some certainty in the annual and lifetime limits.

Why Proactive Planning Matters
With so many provisions phasing in and out, proactive tax planning is essential. The coming years will see the continuance of many prominent TCJA provisions, new deductions, and complex interactions between federal and state rules. William Vaughan Company is here to help you navigate these changes, optimize your tax position, and ensure compliance.

Connect with Us.
Ruben Becerra, CPA – ruben.becerra@wvco.com
Chad Gates, CPA – chad.gates@wvco.com

Categories: Tax Planning

Alert: State Revenue Departments Report A Surge In Tax Phishing Scams

Sep 22, 2025

Across the US, state revenue departments, including those in Ohio and Michigan, have begun reporting a surge in tax phishing scams targeting taxpayers via text messages. These fraudulent messages claim the recipient’s tax refund has been approved and instruct them to click on a link to “finalize processing.” The link directs users to a website impersonating the state’s official tax portal, often displaying authentic-looking logos and branding.

What is a phishing scam?
Phishing scams are a form of social engineering where attackers deceive people into revealing sensitive information or installing malware such as viruses, worms, adware, or ransomware on their devices.

Essential tips for personal protection:

  • Do not click links or respond to suspicious texts: Ignore and delete any unsolicited messages claiming to be from state revenue agencies or the IRS regarding tax refunds.
  • Do not share personal or financial information via text: State revenue departments and the IRS do not communicate tax matters or request sensitive information via text.
  • Verify website addresses: Always double-check URLs before entering any information to ensure you are using the official state revenue department or IRS website.

Next Steps:
If you believe you have been targeted by a tax phishing scam or have shared information with scammers, you should report the scam to the following authorities:

  • Local law enforcement
  • Relevant credit reporting agencies (let them know your information has been compromised).
  • Your Financial Institution
  • State Attorney General
  • State Revenue Department Fraud Prevention Unit

If you are unsure about an incoming message, contact your state revenue agency directly through their official channels. For your convenience, the Ohio Department of Taxation has developed an official video detailing how to recognize fraudulent communications: ODT Scam Awareness Video.

Connect With Us.
wvco.com

Categories: IT & Risk Services, Tax Planning

One Big Beautiful Bill Act (OBBBA) Signed Into Law

Jul 10, 2025

On July 4, President Trump signed into law H.R.1, widely recognized as the One Big Beautiful Bill Act (OBBBA). This comprehensive legislation introduces significant budgetary measures addressing border security, defense, energy policy, and federal spending reductions. Most notably, OBBBA represents one of the most consequential federal tax reforms since the Tax Cuts and Jobs Act of 2017 (TCJA), with far-reaching implications for both individuals and businesses.

The most prominent provisions are outlined below. For a more comprehensive overview of how these changes may impact your specific situation, we encourage you to connect with your William Vaughan Company advisor.

Key Provisions for Businesses

  • Research and Experimentation (R&D) Deductions: OBBBA establishes new IRC Section 174A, enabling immediate deductibility of domestic R&D expenses incurred after December 31, 2024, replacing the prior five-year amortization rule, and enhancing tax benefits for U.S.-based innovation. Companies with capitalized domestic R&D expenses between 2022 and 2024 can elect to accelerate those deductions. Eligible small businesses, generally those with average annual gross receipts not exceeding $31 million, can elect to retroactively apply the full expensing of domestic R&D expenses to tax years beginning after December 31, 2021, by amending their returns for 2022, 2023, and 2024 to claim refunds for taxes paid because of amortization. Other taxpayers with capitalized domestic R&D expenses between 2022 and 2024 can choose to accelerate deductions of the remaining unamortized amount over a one or two-year period, starting with the 2025 tax year. Foreign R&D expenditures remain subject to 15-year amortization.
  • Bonus Depreciation: Restores 100% bonus depreciation, allowing businesses to immediately expense qualifying assets placed in service after January 19, 2025, thereby eliminating the previously scheduled phase-down.
  • Qualified Production Property (QPP): Manufacturers can claim a 100% deduction for the cost of new “qualified production property,” including nonresidential real property, defined as property used in a “qualified production activity” (the manufacturing, production, or refining of a qualified product that results in a substantial transformation of the property). This change applies to qualified property placed in service after the date of enactment and before January 1, 2031.
  • Business Interest: Restores the more favorable EBITDA-based calculation for the business interest deduction limitation under Section 163(j) for tax years beginning after December 31, 2024. This reverts to the approach used from 2018 through 2021, which generally allowed larger deductions. It also provides specific rules regarding the interaction of the business interest expense limitation with other tax provisions that capitalize interest.
  • Pass-through Businesses: Makes permanent the Section 199A qualified business income deduction, with no change to the current 20% deduction percentage. Additionally, the bill expands the limitation phase-in window from $50,000 for single filers ($100,000 for married filing jointly) to $75,000 for single filers ($150,000 for married filing jointly).
  • Pass-through Entity Tax (PTET) Elections: Electing pass-through entities (PTEs) can continue to deduct state income taxes paid at the entity level, effectively allowing business owners to bypass the limitation on individual SALT deductions.
  • Advanced Manufacturing Investment Credit: The advanced manufacturing investment credit rate increases from 25% to 35% for property placed in service after December 31, 2025.
  • Federal Tax Exclusion for Capital Gains from Qualified Small Business Stock (QSBS): Updates Section 1202 of the Internal Revenue Code by raising gain exclusion caps from $10 million to $15 million and allowing investors to access tax benefits after a shorter holding period (as little as three years in some cases). The asset limit is also increased from $50 million to $75 million, making it easier for larger start-ups to qualify.
  • Employee Retention Tax Credit: Retroactively bars the IRS from issuing refunds for Employee Retention Tax Credit (ERTC) claims for Q3 2021 (and in some cases Q4 2021) filed after January 31, 2024. The bill also requires ERTC promoters to comply with due diligence requirements regarding a taxpayer’s eligibility and the amount of an ERTC for affected quarters. In addition, OBBBA includes a $1,000 penalty for each failure to comply and extends the penalty for excessive refund claims to employment tax refund claims.

Key Provisions for Individuals

  • Tax Rates: Permanently extends most of the individual income tax rate structures established by the TCJA of 2017.
  • Standard Deduction: Makes the TCJA’s increased standard deduction amounts permanent. For tax years beginning after 2024, the standard deduction increases to $15,750 for single filers, $23,625 for heads of household, and $31,500 for married individuals filing jointly. The standard deduction will be adjusted for inflation thereafter. These changes are retroactive to include 2025.
  • SALT Cap: The $10,000 cap on state and local tax deductions is raised to $40,000 for most taxpayers. However, the benefit phases out for households with adjusted gross income (AGI) exceeding $500,000, tapering to restore the lower cap for high earners. Both the SALT cap and the income threshold for the phase-out will increase by 1% each year from 2026 through 2029. The $40,000 limit is not permanent; it is scheduled to revert to $10,000 starting in 2030.
  • Alternative Minimum Tax (AMT): The higher AMT exemptions under the TCJA are made permanent, reducing the likelihood of AMT applying for many taxpayers. The exemption phase-out threshold is set at 2018 levels under the TCJA ($500,000 for singles and $1 million for joint filers), indexed for inflation. The exemption also phases out more quickly for higher earners.
  • Excess Business Loss (EBL) Limitations: Makes permanent the current limitations on business losses allowed to offset non-business income, with losses exceeding the limit treated as net operating losses (NOLs) and carried forward to future years.
  • New Deduction for Seniors: OBBBA provides a temporary bonus deduction of $6,000 for individuals age 65 or older (and for each spouse meeting the criteria in the case of a joint return) for taxable years 2025 through 2028. The deduction phases out for joint filers with income starting at $150,000 and $75,000 for all other taxpayers.
  • Charitable Contributions: Creates a permanent deduction for taxpayers who do not itemize. For tax years beginning after December 31, 2025, non-itemizing taxpayers can claim a deduction of up to $1,000 (single filer) or $2,000 (married filing jointly) for certain charitable contributions.
  • Child Tax Credit: Extends and enhances provisions related to the Child Tax Credit (CTC), including increasing the nonrefundable portion of the credit to $2,200 per child. The refundable Additional Child Tax Credit (ACTC) remains at $1,700 for 2025 and will be adjusted annually for inflation. The nonrefundable portion of the CTC will also be indexed for inflation beginning in 2026. Taxpayers must have a valid Social Security number for themselves (or one spouse if married filing jointly) and the qualifying child.
  • Tips & Overtime Pay Deductions: Establishes new above-the-line deductions for the 2025–2028 tax years, allowing taxpayers to deduct up to $25,000 per individual in tip income and up to $12,500 per individual (or $25,000 for joint filers) in overtime compensation. These deductions are subject to phase-out at specified AGI thresholds.
  • Individual Trust Accounts (Trump Accounts): Introduces a new category of tax-advantaged accounts specifically designed to support children under age 18. These accounts can be utilized for qualified expenses such as education, small business investments, and first-time home purchases. Annual contributions are capped at $5,000 per account, with a one-time, government-funded deposit of $1,000 for eligible children born between December 31, 2024, and January 1, 2029. Employers are also permitted to make tax-free annual contributions to these accounts.

Other Notable Provisions

  • Estate Planning: Increases the estate, gift, and generation-skipping tax exemption amounts to $15 million for estates of decedents dying and gifts made after December 31, 2025, and makes them permanent. This is compared to the TCJA’s temporary $10 million exemption (adjusted for inflation to $13.99 million in 2025).

Next Steps
The impact of the One Big Beautiful Bill Act is substantial, introducing changes that warrant continuous review and proactive planning. We strongly recommend that you engage with your William Vaughan Company advisor to assess how these legislative developments may affect your tax liabilities, cash flow, and overall business or personal wealth strategies. Our team is here to help you navigate these complexities and identify opportunities aligned with your objectives.

Categories: Tax Planning

Working Capital In A Deal: Deal Maker or Deal Breaker?

May 09, 2025

In M&A transactions, working capital is often a critical but underestimated factor. Misunderstandings or misalignment around this concept can derail a deal, impact the purchase price, or create post-close complications. A clear understanding of working capital and its role in deal mechanics can significantly reduce these risks.

What is working capital?
Working capital represents the liquidity available for a business’s day-to-day operations, calculated as current assets (e.g., cash, receivables, inventory) minus current liabilities (e.g., payables, accrued expenses). Most deals are structured on a cash-free, debt-free basis, with an emphasis on net working capital (NWC)—excluding short-term debt—to evaluate the operational baseline of the business.

Working capital from the seller’s perspective.
Before entering the market, it is crucial for a seller to establish a comprehensive working capital mechanism. This should encompass precise definitions and the relevant accounting principles, leaving no room for misinterpretation. Collaborating with a due diligence advisor to establish realistic figures and draft clear agreement language can help ensure a fair and balanced transaction. Neglecting this step may inadvertently provide the buyer with a competitive advantage.

Key considerations for a seller in developing a working capital mechanism include:

  • Business Seasonality: Understanding seasonal fluctuations that may affect working capital requirements.
  • Business Growth: Anticipating future working capital needs that may diverge from historical data due to growth.
  • Industry Working Capital Trends: Being aware of prevailing trends within the industry that could impact working capital expectations.
  • Single Transaction Impact: Identify any significant one-time transactions that could cause deviations in the company’s working capital from the norm.

Working capital from the buyer’s perspective.
Buyers rely on NWC as an indicator of operational health and aim to avoid post-close capital injections. The working capital “peg” is a negotiated target that ensures the business is transferred with adequate operating capital. Factors for a buyer to consider:

  • Review Working Capital Agreements: Proactively addressing potential issues can prevent delays in closing the deal.
  • Accruals & Reserves: Include items like vacation pay, bonuses, warranties, and sales allowances.
  • Assess Cutoff Issues: Verify that interim period cutoff issues are adequately accounted for.
  • Consider Business Growth: Determine if the business and its working capital needs are expanding.

Avoid letting working capital derail your transaction.
Understanding the intricacies of working capital—an often highly negotiated component of M&A transactions—can significantly enhance both buyers’ and sellers’ prospects for post-closing success. Engaging a due diligence advisor early in the process, particularly during the LOI phase, can help navigate complexities, mitigate unexpected challenges, and contribute to the overall success of the transaction.

Connect With Us.
Patrick Mannion, Managing Director
Transaction Advisory Services

Categories: M&A

IRS Releases New Employee Retention Tax Credit Guidance

Mar 28, 2025

Wait, we’re talking about the Employee Retention Tax Credit (ERC) yet again? Yes, you read it right, after hearing very little on the topic for the past 18 months, ERC is back in the news. On March 20, 2025, the IRS released new Employee Retention Tax Credit Guidance in an updated FAQ.

Specifically, the IRS introduced a new section entitled “Income Tax & ERC,” that addresses, one, situations where taxpayers didn’t reduce their claimed wage expense but received the ERC, and two, situations where taxpayers did reduce wage expenses but had a disallowed ERC claim. The tax authority also expanded guidance on reporting ERC fraud.

Here is what you need to know:

Income Tax & ERC

  • The IRS stands by its original position that taxpayers should have reduced their deductible wage expense by the amount of allowed ERC in the tax year the qualified wages were paid or incurred. However, the IRS is now providing alternative solutions for claiming unreduced wages. Under the revised guidelines, taxpayers now have the option to report the overstated wage expense as gross income in the tax year when the Employee Retention Credit was received, rather than amending their previous returns. This marks a shift from the earlier policy.
  • The updated FAQ also addresses scenarios where an ERC claim was denied after a taxpayer had already reduced their wage expenses for the year in which the qualified wages were paid. In these cases, taxpayers can now adjust their current return to reflect the increased wage expense corresponding to the disallowed ERC, instead of filing an amended tax return, an AAR, or a protective claim for refund for the earlier tax year. It’s important to note that taxpayers may still opt to amend previous returns to recapture the previously reduced wages.

ERC Scams

  • The IRS has issued further guidance on the procedures for reporting ERC-related fraud, strongly urging taxpayers to report any suspicious activities, including illegal, tax-related activities involving ERC claims, individuals who promote improper and abusive tax schemes, and tax return preparers who deliberately prepare improper returns. The step-by-step process for reporting ERC fraud can be found in the “ERC Scam” section of the FAQ.

To read the full FAQ along with the updated guidance, please refer to the IRS website here. To better understand how this new guidance may impact your business, we encourage you to connect with our Employee Retention Tax Credit (ERC) lead, Mike Hanf.

Mike Hanf, Tax Partner – mike.hanf@wvco.com

Categories: Tax Compliance

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