2025 Year-End Tax and Financial Business Update

As you prepare for the upcoming tax season, it’s important to stay aware of the evolving tax landscape and ensure your strategy continues to support your financial goals. This year has brought significant changes — from new tax legislation and economic trends to shifts in how and where we work.

At Allworth Tax Solutions, our goal is to help you understand these changes and position your business for financial success in the year ahead. Whether you’re focused on maximizing deductions, planning for retirement, or adapting to life changes, we’re here to guide you every step of the way.

Qualified Business Income (QBI) Deduction

The 20% Qualified Business Income (QBI) deduction for eligible business income has been made permanent, with expanded phase-in ranges and a minimum deduction of $400 for taxpayers reporting at least $1,000 of qualified business income. These updates may create new opportunities to reduce taxable income.

Bonus Deprecation and Section 179 Expensing

Beginning January 19, 2025, bonus depreciation allowing 100% expensing of qualifying property is permanently extended. In addition, Section 179 expensing limits will increase to $2.5 million, giving business owners greater flexibility when investing in equipment, technology, and other qualifying assets. To take advantage of these benefits for the 2025 tax year, be sure that qualifying property is bought and placed in service before year-end.

Clean Energy Incentives Update

Several federal clean energy tax incentives are set to expire over the next two years. The Clean Vehicle Credit ends for vehicles placed in service after September 30, 2025, while other key incentives are still available a bit longer. These include the Alternative Fuel Vehicle Refueling Property Credit, the New Energy Efficient Home Credit, and the Energy Efficient Commercial Buildings Deduction—all of which are currently scheduled to expire on June 30, 2026, for both beginning construction and placing qualifying property in service. If your business is considering energy-efficient home construction, energy efficient commercial building upgrades, or alternative fuel infrastructure investments, it may be helpful to act while these credits and deductions are still available.

1099-K Information Reporting Thresholds 

For 2025, the Form 1099-K reporting threshold for third-party settlement organizations reverts to $20,000 and 200 transactions per payee per year. The Form 1099-NEC/MISC reporting threshold for payments to service providers stays at $600 for 2025 but will increase to $2,000 in 2026 and be indexed for inflation going forward. Review your vendor payments and reporting processes now to ensure your systems are ready for these changes and remain fully compliant with IRS requirements.

Analyze Your Financial Statements

As the year comes to a close, it’s important to review your income and expenses. Getting caught up on bookkeeping and reviewing your financial statements can give you a more accurate picture of your current tax position — a critical step in effective year-end planning. Focus on areas such as prepaid expenses, major equipment purchases, and income timing, as each can significantly affect your taxable income.

Business Meals

As the holiday season brings more opportunities to connect with customers and employees, it’s a good time to revisit the rules for deducting business meals. While some meals may qualify for a 100% deduction, most business meals are still 50% deductible under current tax law — such as meals with current or prospective clients or meals bought while traveling for business. Starting in 2026, meals provided routinely to employees in on-site break rooms or employer-operated cafeterias for the employer's convenience are no longer deductible, with some exceptions. However, meals provided for social or recreational events — such as a company holiday party — will continue to be 100% deductible, provided the event is primarily for the benefit of non–highly compensated employees. Properly categorizing meal expenses and maintaining clear, detailed records can help ensure your deductions are accurate and compliant.

Net Operating Losses (NOLs) 

If your business deductions exceed your income for the year, you may have a Net Operating Loss (NOL). In many cases, an NOL can be used to offset taxable income in other years, helping to smooth out fluctuations in your business results. Currently, the deduction is limited to 80% of taxable business income in any single year.

Digital Assets and Virtual Currency

Starting in 2025, the IRS will require brokers and qualifying platforms to report certain digital asset transactions, such as cryptocurrency, stablecoins, and NFTs. You may receive a new Form 1099-DA in early 2026 if you completed digital asset transactions in 2025. Even if you don’t receive this form, you are still responsible for reporting all taxable digital asset transactions on your tax return. Maintain detailed records of your purchases, sales, and exchanges to ensure accurate reporting.

Research and Experimental (R&E) Expenses

Beginning with tax years starting after December 31, 2024, domestic Research and Experimentation (R&E) expenses can again be deducted immediately, rather than capitalized and amortized. However, foreign R&E expenses must still be capitalized and amortized over 15 years. These rules are complex, and expenses may face increased scrutiny from taxing authorities.

Additional Considerations:

• • Charitable Contributions –– For the 2025 tax year, C corporation charitable contribution deductions are limited to 10% of taxable income. Beginning in 2026, a new 1% floor on corporate charitable contributions will take effect. This means a C corporation may deduct charitable gifts to the extent that total contributions exceed 1% of taxable income, with the total deduction still capped at 10% of taxable income. For flow-through entities, charitable contribution deductions may also be limited based on each owner’s individual taxable income, including the new .5% AGI floor for individuals who itemize beginning in 2026. Strategic timing can help ensure your business receives the maximum available tax benefit while supporting the causes that matter most to you.
  • Transactions Between a Business and Its Owners –– Transactions such as loans, distributions, or compensation can carry important tax and compliance implications. The way these are structured can affect both your tax liability and your overall financial strategy. It is important to ensure that these transactions are accurately documented, compliant, and designed to achieve the most favorable tax outcomes.
  • Partnership Audit and Adjustment Rules –– Although the partnership audit and adjustment rules have been in effect for several years, we continue to see some partnerships and their partners caught off guard by the unexpected consequences these rules can create. Year-end is a good time to review your partnership agreement.
  • State and Local Tax (SALT) Considerations –– Businesses face a variety of state and local tax (SALT) obligations that can affect both compliance and planning. These rules can be complex and vary significantly by jurisdiction. Regular review of your company’s filing requirements and nexus exposure can help minimize risks and identify potential savings opportunities.
  • Preparing for Disasters –– Unexpected events can disrupt even the most stable businesses. A well-maintained disaster recovery plan helps protect your operations, employees, and financial systems. Review and update your plan regularly, ensuring that your accounting records, payroll systems, and client data are securely backed up and accessible.
  • Retirement Plans –– Recent legislation, including SECURE Act 2.0, introduced new opportunities to enhance company retirement plans. Enhanced tax credits for small businesses, automatic enrollment options, and the option for Roth treatment of employer contributions can make offering a plan more beneficial for both business owners and employees. Many states, including California, require businesses that do not offer a qualified retirement plan to register with the state program and facilitate employee participation in accordance with state law. Year-end is an excellent time to review your current plan to ensure you’re maximizing available deductions while helping your team build stronger retirement savings.
  • Form 5500 Filing Requirements –– As you prepare for year-end, remember to review your Form 5500 filing obligations for employee benefit plans.
  • Employee vs. Independent Contractor –– Properly classifying your workers is critical to avoiding costly tax complications. Take the time to carefully review each individual’s status to ensure they are correctly designated as either an employee or an independent contractor. If you’re uncertain about status, we recommend seeking legal guidance from an attorney familiar with employment law.
  • Estimated Tax Payments –– As year-end approaches, it’s important to ensure your estimated tax payments are up to date. Reviewing this now can help you minimize or avoid underpayment penalties and ensure your payments accurately reflect your present financial situation.
    
    
    

Year-End Preparation for the Upcoming Tax Season Means Fewer Surprises

As the year ends, taking some time to prepare for tax season can help minimize surprises and position your business for long-term financial success. Our team is committed to keeping you updated on changing tax rules, so you know what to expect in the upcoming tax filing season.

Please note that the updates outlined above reflect federal tax rules. State tax laws can vary significantly and may include additional requirements or differences that affect your situation, so it’s important to be aware of the rules that apply in your state.

Thank you for trusting us as your advisor. We look forward to continuing to support you now and in the year ahead.

The information presented is for educational purposes only and is not intended to be a comprehensive analysis of the topics discussed. It should not be interpreted as direct tax or legal advice and should not be relied upon as such.