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

Ohio Tax Update: State Offers Dollar-for-Dollar Tax Credit for Scholarship Fund Donations

Dec 14, 2022

Starting with the 2021 tax year, the state of Ohio began offering dollar-for-dollar tax credits to individuals who donate to an Ohio-certified scholarship granting organization, or SGO. Defined by the state, SGOs are organizations exempt from federal taxation under section 501(c)(3) of the Internal Revenue Code, that prioritize awarding academic scholarships for low-income students to attend primary and secondary schools (K-12), and that receive certification from the Office of the Ohio Attorney General.

Individuals that donate to an SGO can expect to receive a tax credit equal to 100 percent of their contribution (up to $750,) while married couples could receive up to a $1,500 credit. In addition to claiming the state tax credit, eligible charitable contributions can also be claimed on federal income tax returns if the taxpayer opts to itemize their deductions.

Currently, there are 25 certified SGOs in the state of Ohio, all of which are listed on the Ohio Attorney General’s website.

“This is a very easy credit for Ohio taxpayers to take advantage of,” says William Vaughan Company Tax Partner, Sandi Towns. “Those who have donated to Ohio-certified SGOs in 2022 need simply include their proof of donation letter(s) with other tax documents given to their accountants.”

Says Towns, “William Vaughan Company’s tax team will continue to monitor this and other tax credit updates, however I urge anyone wishing to take advantage of these credits to contact their accountant in order to determine which credits make the most sense for their specific tax and financial situation.”


Connect with us.


Sandi Towns, CPA/PFS, CFP®
Tax Partner
sandi.towns@wvco.com

Categories: Tax Planning

Employee Retention Tax Credit – Updates & Reminders

Nov 15, 2021

Don’t leave ERTC money on the table!

The Employee Retention Tax Credit (ERTC) is a provision established under the CARES Act which has been enhanced by additional legislation and could provide an immense amount of capital to employers. Unfortunately, statistics are showing the credit is being underutilized. The good news is with year-end planning on the horizon, now is the perfect time to leverage the ERTC.

What is the ERTC?
This is a refundable tax credit employers can claim against certain employment taxes, equal to a percentage of qualified wages and health insurance premiums paid after March 12, 2020, and before September 30, 2021.

For 2020, the credit is 50% of qualified payments, up to $10,000 per employee. Simply put, an eligible business has the potential to request refunds of up to $5,000 per employee for the year.

For 2021, the credit increases to 70% of qualified payments, up to $10,000 per employee per quarter. The credit was intended to run through December 31, 2021, but the passing of the recent Infrastructure Bill put an end to it after September 30. Nevertheless, the credit is still fair game for the first three quarters of 2021. With a maximum credit of $7,000 per employee, per quarter, a business eligible for all three quarters of 2021, could receive refunds of $21,000 per employee. Without question, the ERTC can provide much-needed dollars for eligible employers.

How do I know if my business is eligible?
For most businesses, eligibility is determined by meeting one of two tests; with a third test available for quarters 3 and 4 of 2021, which will be outlined later.

  • TEST #1 – A measure of decline in gross receipts. If an employer experiences a significant decline in gross receipts for any calendar quarter, as compared to the same calendar quarter in 2019, they will be eligible for the credit in that quarter. For 2020, this is defined as gross receipts that are less than 50% of gross receipts for the same quarter in 2019, and for 2021, this is gross receipts being less than 80% of gross receipts for the same quarter in 2019.
  • TEST #2 – A full or partial suspension of operations. If an employer was subject to any full or partial suspension of operations because of government orders related to COVID-19 they could be eligible. These orders could be Federal, State, county, and/or municipality. Even if your business was deemed essential and was not directly affected by such orders, there still could be avenues to be eligible for the credit.
  • TEST #3 – Under a third test, if a business can meet the definition of a recovery startup business, they can claim the credits for the 3rd and 4th quarters of 2021 only (not exceeding $50,000 per quarter). A recovery startup business is any employer that began a trade or business after February 15, 2020, and has average annual gross receipts of less than $1,000,000.

What are some important details to keep in mind?

  1. First, gross receipts are determined based on the method used for the employer’s tax return. Meaning, if your business uses the cash method for tax purposes, then gross receipts for Test #1 should be calculated using the cash method, even if your financial statements use the accrual method. This could be beneficial for businesses, especially during times when the pandemic was hitting the hardest and collections slowed.
  2. Another important item to keep in mind is that, for this credit, employers are considered either small or large. For 2020, a small employer is one that, based on 2019 counts, averaged 100 or fewer full-time employees. For 2021, this number increases to an average of 500 or fewer full-time employees, still based on 2019 counts. If a business is above these amounts, they are considered large. Small employer status is more advantageous because it allows qualified wages to include all wages paid. If a business is considered a large employer, qualified wages are limited to wages paid to an employee only for the time that employee was not providing services. For example, if your business is a large employer and operations were partially suspended, but all your employees continued working during that time, your business may not be able to claim any credits on the wages paid during that suspension period. For this purpose, a full-time employee is an employee that, in 2019, averaged at least 30 hours per week or 130 hours per month. As an example, an employer in 2019 who had 5 employees that worked 25 hours per week and 5 employees that worked 30 hours a week, would only be considered to have 5 full-time employees. Early on, a common misconception was that full-time employees were equal to full-time equivalents, which may have caused some businesses to think they were large employers, when in fact that may not be the case.
  3. Finally, there are several different paths a business could take to qualify for the ERTC based on a full or partial suspension of operations due to governmental orders. As previously mentioned, even if your business was not directly affected by the orders, there still could be ways to qualify for the credit. We encourage you not to overlook this test as it could be very beneficial to revisit.

What are my next steps?
With year-end planning season looming, your William Vaughan Company advisor will surely be discussing this topic with you in the coming weeks. If you are not currently a client, but this topic has piqued your interest and you would like us to look at how this credit might benefit your business, please do not hesitate to reach out to us. As mentioned, the credit has been generally underutilized, so we would love to help your business realize the greatest benefits it can.

Connect With Us.

Mike Hanf, CPA, CGMA

ERTC Lead

mike.hanf@wvco.com

Categories: Tax Planning

Capitalizing on the R&D Tax Credit For Manufacturers

Apr 28, 2021

While the Research and Development (R&D) Tax Credit has been around for some time, it remains one of the best opportunities for manufacturing and distribution companies to minimize their tax liability and leverage an immediate source of cash. The credit was designed to provide a tax incentive for U.S. companies to increase spending on research and development in the U.S.

How to qualify

What constitutes as R&D is much broader than manufacturers realize. Applying to not only the development of products, but also activities and operations, such as new manufacturing processes, environmental improvements, software development, and quality enhancements. The R&D credit is available to any business that incurs expenses while attempting to develop new or improved products or processes while on U.S. soil. A four-part test has been established to help manufacturers determine if they qualify:

  • An activity that creates a new or improved business component of function, performance, reliability, or quality;
  • Technological in nature and related to physical or biological science, engineering, or computer science;
  • Intended to discover information to eliminate uncertainty in capability, method, or design;
  • An activity that includes a process of experimentation, or evaluating one or more alternatives to achieve a result. This might include modeling, simulation, or systematic trial-and-error.

How to claim the credit

Since the credit may be claimed for both current and prior tax years, manufacturers should document their R&D activities to ensure they are positioned to claim the credit in both situations. You will be required to factually provide the number of qualified research expenses (QREs) paid with documentation such as payroll records, general ledge expense detail, project lists, and notes, etc. Qualified research expenses are defined as:

  • Wages paid to people directly working on, supervising, or directly supporting the development process
  • Supplies used or consumed during the development process
  • Contract research expenses paid to a third party for performing qualified research activities on behalf of the company
  • The cost of cloud service providers or leasing computers used in research activities

It is important to note that research doesn’t have to lead to a successful product or process for the expenses to count. Even if the project or research failed, you can still claim the credit.

Additional tax benefits

  • Alternative Minimum Tax – Eligible small businesses with an average of $50 million or less in gross receipts over the past three years may claim the federal R&D tax credit against their alternative minimum tax liability beginning in 2016.
  • Payroll Tax – Eligible startups can use the credit to offset payroll withholding taxes. Startups using the provision must have gross receipts of less than $5 million and no gross receipts prior to the five taxable years ending in the then-current tax year. The credit towards payroll withholding taxes is limited to $250,000 in one year, but companies can carry forward excess credits to apply to future payroll withholding taxes.

How we can help

For more information about R&D credits or reducing your company’s risk of facing penalties, contact our Manufacturing & Distribution Practice Leader below.

Connect With Us.
Robert Bradshaw, CPA
Manufacturing & Distribution Practice Leader
bob.bradshaw@wvco.com | 419.891.1040

Categories: Manufacturing & Distribution, Tax Planning

Election 2020 Tax Policy Comparison

Oct 15, 2020

As the 2020 presidential election inches closer, how do President Trump’s and Vice President Biden’s tax proposals compare?

Check out our resources below. In addition, William Vaughan Company’s Tax Practice Leader, Sandi Towns has outlined some estate tax planning considerations in our latest WVC Short, here.

Flyer_Tax Comparision_2020 Presidential Election Tax Comparison

Categories: Tax Compliance, Tax Planning