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

Bonus Depreciation Phase-Out

May 24, 2022

Properly qualifying assets for bonus depreciation can have a significant impact on a business’s bottom line. If an asset qualifies as long-term business property under tax rules, bonus depreciation may allow a business owner to deduct the entire cost of that asset in the year of acquisition.

This will be the last year for 100% bonus depreciation as enacted by Tax Cuts and Jobs Act (TCJA). Starting in 2023, bonus depreciation is scheduled to drop to 80% and will continue to drop by 20% each year thereafter until finally there will be no bonus depreciation starting in 2027.

Prior to the enacting of bonus depreciation, the premier tool for businesses to expense asset purchases was Section 179. Section 179 is still scheduled to be fully available and the current amount of Section 179 deduction allowed is $1,080,000 and the phase-out of the deduction starts once you place eligible assets into service of $2,700,000 and no Section 179 deduction is allowed after $3,780,000 of assets placed in service for that year. Unlike bonus depreciation, Section 179 deductions are only allowed to the extent of taxable income.

Although tax incentives like Section 179 and bonus depreciation can be beneficial, these provisions should only be used in situations that make long-term financial sense for your operation. It is important to always consider your tax circumstances and cash-flow requirements when using these tools. Connect with your William Vaughan Company advisor with additional questions.

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wvco.com

Categories: Tax Compliance, Tax Planning

Strategic Financial Moves to Consider During A Market Downturn

May 19, 2022

The natural ebbs and flows of market volatility can make even the best investors a bit nervous at times. However, smart investors also recognize the opportunities presented by a downturn. These include specific financial strategies to be leveraged for a long-term benefit. Here are several financial moves one should consider during a market lull:

Roth IRA Conversions
During normal market conditions, Roth IRA conversions typically initiate a sizable tax event. However, during a market dip, Roth IRA conversions are a prime opportunity to move funds from a traditional taxable IRA to a tax-free Roth IRA all while saving money.

To achieve the benefits of a Roth IRA conversion, investors convert funds from their traditional IRA to a Roth IRA. While the conversion will trigger a taxable event, it’s based on the contributions and earnings. The larger your pre-tax balance, the more you will owe. During market volatility, financial experts recommend making this move as “it is like getting the Roth IRA on sale” and when the market ultimately recovers, that growth is captured, tax-free, inside of the Roth IRA.

If you don’t have a traditional IRA, this can also be achieved through what some call a “backdoor Roth IRA,” an unofficial means for high-income individuals to create a tax-free Roth IRA.

Remember, the earnings limits for Roth individual retirement account contributions are capped at $144,000 modified adjusted gross income for single investors and $214,000 for married couples filing together in 2022.

To achieve the benefits of a “backdoor” Roth IRA conversion, investors make what’s known as non-deductible contribution to a pre-tax IRA before converting the funds to a Roth IRA, kickstarting tax-free growth.

Gift & Estate Planning
A market downturn is also a great opportunity for individuals seeking to minimize estate taxes and gift assets to others. This is because the value of the securities will be lower, resulting in a lower gift tax amount and all subsequent appreciation will be excluded from your estate – a win-win!

Tax-Loss Harvesting
Tax-loss harvesting is another key strategy to consider during a down market. It involves selling investments that have lost value and replace them with similar investments to ultimately offset your capital gains with capital losses. In doing so, investors reduce their tax liability while better positioning their portfolio. This can be done up to $3,000 a year. The average investor can leverage this strategy and it doesn’t involve much but an assessment of your investments and their performance. A couple of items to note when considering this option is:

  • It applies only to investments held in taxable accounts – so it does not include 401(k)s, 403(b), IRAs or 529s because the growth in these tax-sheltered accounts in not taxed by the IRS
  • This is not a beneficial strategy for those in lower tax brackets – the idea is to reduce your tax liability and traditionally, those individuals in the higher tax bracket have a greater liability and therefore, a greater savings.
  • The deadline for taking advantage of this approach is the end of the calendar year – December 31.

Finally, the information provided above is for general information only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. We recommend connecting with your financial and tax advisors to discuss the best plan of action for your personal situation.

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wvco.com

Categories: Estate Planning, Tax Planning