Year End Tax Planning | The Sherbert Group

Year End Tax Planning for Small Businesses and Individuals

By Joseph Buckland

Senior Tax Manager, Sherbert CPA, PC

As we approach the end of the year, it’s a great time to take stock of your financial health, review your financial picture, take steps to capture available tax savings and ensure your tax strategies are working for you. This year has brought unique challenges and opportunities — from new tax legislation and economic shifts to changes in work arrangements and personal circumstances. Our goal is to help you navigate these developments and position yourself for financial success in the coming year.

Year-end Tax Planning for Small Businesses:

Qualified Business Income (QBI) deduction

The 20% QBI deduction for certain business income is now permanent, with expanded phase-in ranges and a minimum deduction of $400 for taxpayers with at least $1,000 of qualified business income. It could be time to review your business structure and income to ensure you are positioned to maximize this deduction.

Capital expenditures

“Bonus” deprecation (100% expensing of qualifying property) is permanently extended for property acquired and placed in service after Jan. 19, 2025. Sec. 179 expensing limits are increased to $2.5 million. We can help you prioritize expenditures, placed-in-service timing and state conformity.

Clean energy incentives

Many clean energy incentives are scheduled to terminate in 2025 and 2026. If you have invested in or are considering investing in these areas, let us help you determine how to maximize the available benefits.

Business meals

As you enter the holiday season and have more social gatherings with your customers and employees, keep in mind the rules for business meal deductions. There are circumstances where certain business meals may qualify for a 100% deduction. It is important to properly categorize your expenses.

Analysis of your financial statements

Look at where your business is positioned with income and expenses to close out the tax year. This may mean getting caught up on your bookkeeping to have a better picture of where your tax situation stands. This is a critical part of the tax planning process. This is also the time to project any remaining income and expenses that may be received or owed before the end of the year. We can help you analyze your financial statements for tax savings and planning opportunities.

Information reporting thresholds

Form 1099-K reporting threshold for third-party settlement organizations reverts to $20,000 and 200 transactions per payee per year for 2025. The Form 1099-NEC/MISC threshold for reporting payments to service providers remains at $600 for 2025 and increases to $2,000 in 2026 and will be indexed for inflation. It is important to review your vendor payments and reporting systems to ensure compliance.

Net operating losses (NOLs)

If your deductions for the year are more than your income for the year, you may have an NOL. In general, you can use an NOL by deducting it from your income in other year(s), but it is limited to 80% of your taxable business income in any one year. We can advise you on any potential tax benefits and limits.

The rules are complex, and careful research and planning now can be beneficial.

Digital assets and virtual currency

Digital assets are defined as any digital representations of value that are recorded on a cryptographically secured distributed ledger or any similar technology. For example, digital assets include non-fungible tokens (NFTs) and virtual currencies, such as cryptocurrencies and stablecoins.

Beginning with transactions occurring in 2025, the IRS has implemented new reporting requirements. For certain transactions through a broker or certain digital asset platforms, you may receive a new Form 1099-DA in early 2026. It is important to note that you are responsible for accurately reporting all taxable digital asset transactions on your tax return, even if you do not receive a Form 1099-DA. It is important to maintain detailed records of all digital asset purchases, sales, exchanges and related transactions to substantiate that reporting. The IRS continues to increase its scrutiny and reporting requirements in this area.

Contact us to help if you have questions about your digital asset activity, how these new rules may affect you or if you need assistance with recordkeeping or tax reporting for digital assets.

Additional tax and financial planning considerations for small businesses

Charitable contributions –– For tax year 2025, the maximum allowable contribution deduction is limited to 10% of a corporation’s taxable income. In 2026, contributions will have a new limitation of .5% of income. Flowthrough entities’ charitable contributions may be limited based on the owner’s taxable income. Careful planning is needed to capture the tax benefit potential of charitable contributions.
Transactions between a business and its owners –– Transactions between a business and its owners, such as loans, distributions, or compensation, carry important tax implications. We can help you structure these arrangements to ensure compliance while achieving the most tax-efficient results.
Partnership audit and adjustment rules –– Changes to the partnership audit and adjustment rules have been in effect for a few years but we are still seeing some partnerships and their partners blindsided at the unpleasant consequences that can arise from these rules. Careful planning today can help mitigate any unfavorable consequences to both the entity and the partners themselves.

Year-end Tax Planning for Individuals:

Energy tax credits and green incentives

Many federal energy credits, including those for new and used clean vehicles, solar panels and energy efficient home improvements, have expired or are set to expire soon. If you are considering such purchases or upgrades, we can help you determine if your purchases will still qualify.

State and local tax deduction

The cap on the deduction for state and local taxes is temporarily increased to $40,000 ($20,000 for married filing separately) for 2025 through 2029, with a phase-down for higher incomes. The cap reverts to $10,000 after 2029. This may affect whether it is beneficial for you to itemize deductions and your overall tax planning.

New temporary deductions for tips, overtime, car loan interest and seniors

For 2025-2028, you may be eligible for new deductions: up to $25,000 of qualified tips; up to $12,500 ($25,000 joint) of overtime premium pay; up to $10,000 of interest on loans for new, U.S. assembled vehicles; and an additional senior deduction of up to $6,000 if you are age 65 or older available to those who itemize or claim the standard deduction. Each deduction is subject to income phase-outs and specific eligibility rules. If these deductions are applicable to your situation, we can help you maximize these benefits.

Charitable contribution planning

With changes coming in 2026 to the charitable deduction, it will be important to review your plans to discuss the best timing and structure for your charitable giving. There are many tax planning strategies we can discuss with you about charitable giving.

Consider donating appreciated assets that have been held for more than one year, rather than cash. You benefit from a deduction for the fair market value (FMV) of your appreciated stock and avoid taxes on capital gains from the appreciation.
Opening and funding a donor advised fund (DAF) is appealing to many as it allows for a tax-deductible gift in the current year and the ability to distribute those funds to charities over multiple years.
Qualified charitable distributions (QCDs) are another beneficial option for those over age 70 ½ who don’t typically itemize on their tax returns. A QCD counts toward your required minimum distribution (RMD) and is excluded from taxable income, especially valuable if you do not itemize deductions.

It is essential to maintain proper documentation of all donations, including obtaining a letter from the charity confirming that no goods or services were provided in exchange for donations of $250 or more.

Estate and gift tax planning

The federal estate and gift exemption will increase to $15 million per person ($30 million per couple) for transfers after Dec. 31, 2025, with future inflation adjustments. The annual gift exclusion for 2025 and 2026 is $19,000 per recipient. These changes may present new planning opportunities for wealth transfer and estate planning. Please contact us to review your estate plan in light of the changes.

Electronic payments to and from the IRS

In March 2025, President Trump signed an executive order requiring all federal disbursements, including IRS tax refunds to be made electronically rather than by paper check, effective Sept. 30, 2025. According to the IRS, payments to Treasury can still be made using the current acceptable methods until guidance is released to provide a timeline for electronic payments. We recommend reviewing your current refund and payment methods to ensure compliance and to avoid delays or complications in the future. Please let us know if you would like to discuss how these changes might affect you.

Additional tax and financial planning considerations for individuals

Life changes –– Let us know about any major changes in your life such as marriages or divorces, births or deaths in the family, job or employment changes, starting a business and significant expenditures (real estate purchases, college tuition payments, etc.). These events often create both tax and planning opportunities.
Capital gains and loss harvesting –– Consider tax benefits related to using capital losses to offset realized gains. Selling underperforming assets before year-end can help manage taxable income.
Education planning –– Save for education with Sec. 529 plans. There can be income tax benefits to do so, and there have been changes in the way these funds can be used. We can help you with any questions.
Required minimum distributions (RMDs) –– You cannot keep retirement funds in your account indefinitely. RMDs are the minimum amount you must annually withdraw from your retirement accounts once you reach a certain age (generally age 73). Failure to do so can result in significant penalties.

Retirement Plans –– We recommend you review your retirement plans at least annually. That includes making the most of tax-advantaged retirement saving options, such as traditional individual retirement accounts (IRAs), Roth IRAs and company retirement plans. It is also advisable to take advantage of health savings accounts (HSAs) that can help you reduce your taxes and save for medical-related expenses.

Roth IRA conversions –– Evaluate the benefits of converting your traditional IRA to a Roth IRA to lock in lower tax rates on some of your pre-tax retirement accounts.
Estimated tax payments –– With underpayment interest rates currently at 7% for federal, it is a good idea to review withholding and estimated tax payments and assess any liquidity needs.

Conclusion:

As the year draws to a close, thoughtful planning can help you minimize surprises and position yourself for greater financial success. Our team is committed to guiding you through these changes and helping you make informed decisions tailored to your unique situation.

Contact Us:

Contact The Sherbert Group to schedule your personalized year-end review. Together, we can identify opportunities, address any concerns, and ensure your tax and financial strategies are aligned with your goals.