As Q1 2025 approaches, small and medium-sized business owners have a unique opportunity to strengthen their tax strategies for the new year. A strategic tax plan isn’t just about lowering the tax bill — it’s also about aligning tax savings with long-term business goals, reinvesting in growth, and positioning your business for success. To make the most of this season, ask your tax provider these critical questions covering key tax credits, deductions, and recent tax law changes.
1. What Tax Credits and Deductions Can I Take Advantage of in 2025?
Numerous tax credits and deductions are designed to help small and medium-sized businesses reduce their tax liability. For example:
- Section 179D Deduction: This deduction is valuable for businesses in architecture, engineering, and construction as it allows deductions for energy-efficient building investments.
- R&D Tax Credit: Available to businesses that invest in innovation, this credit can be applied to wages, supplies, and other expenses related to product or process development.
- Cost Segregation Studies: These studies accelerate depreciation deductions on certain property, freeing up cash for reinvestment.
2. How Can We Leverage the §179D Deduction for Energy-Efficient Building Improvements?
The §179D deduction offers a valuable incentive for businesses that own or lease commercial properties and invest in energy-efficient improvements. This deduction, designed to reward energy-efficient building upgrades, can significantly reduce your taxable income by offering up to $5 per square foot for qualifying projects.
If your business has recently completed—or plans to undertake—projects such as upgrading lighting systems, HVAC systems, or insulation, this deduction could be a substantial tax saver. Specifically, the §179D deduction is particularly beneficial for small and medium-sized businesses within the architecture, engineering, and construction sectors, as well as for those that own commercial real estate.
Here are some points to discuss with your tax provider regarding the §179D deduction:
- Eligibility for Retroactive Deductions: You may be able to claim the §179D deduction for qualifying energy-efficient improvements made in previous years, depending on recent legislative updates. This can be particularly valuable for businesses that have yet to take advantage of this deduction.
- Documentation Requirements: To qualify, projects must meet certain energy efficiency standards and require third-party verification. Ensuring your upgrades align with these standards is crucial, so ask your tax provider about necessary documentation and steps to avoid compliance issues.
- Potential Savings Per Square Foot: Since the deduction is calculated based on the size of the property and the efficiency improvements, understanding the potential tax savings per square foot is important for accurate planning.
3. What Expenses Are Eligible for §174 R&D Expenditures, and How Can I Maximize the Deduction?
Recent changes to §174 now require that R&D expenditures be capitalized and amortized over five years (or 15 years for foreign research). For businesses heavily invested in research and development, understanding how these changes impact cash flow and tax liabilities is essential.
Proactive Planning: Ask your tax provider to help you identify eligible R&D expenses and optimize amortization strategies to balance immediate cash flow needs with long-term tax savings. If your business qualifies for the R&D Tax Credit, combining this credit with strategic handling of §174 expenses can enhance overall tax savings.
4. Are There New Legislative Changes to Consider for 2025?
The political landscape can influence tax policy, with new laws and regulations often introduced following an election cycle. It’s important to ask your tax provider about recent tax changes that may impact your business in 2025. Upcoming changes could affect tax credits, deductions, and eligibility requirements, so be sure to get a clear picture of what’s on the horizon.
Stay Informed: A tax professional can keep you updated on any post-election tax changes impacting §179D, §174, and cost segregation benefits. Consider scheduling quarterly check-ins to ensure your tax strategy remains up-to-date.
5. Should I Conduct a Cost Segregation Study?
A cost segregation study can provide significant tax savings for property owners by accelerating depreciation on specific assets within a building, such as fixtures, flooring, and landscaping. This strategy is particularly valuable for business owners with real estate holdings or those planning large property investments in 2025.
Next Steps: Ask your tax provider whether your property investments qualify for cost segregation. This can free up capital that you can reinvest in other growth areas of your business, all while reducing your tax liability.
6. What Business Structure Offers the Most Tax Advantages for 2025?
Your business structure has a substantial impact on your tax liabilities. For example, an S Corporation or LLC may offer tax advantages over a sole proprietorship by allowing you to separate personal and business income or by reducing self-employment tax obligations on some income.
Consider Growth Impacts: If you’re expecting growth in 2025, ask your tax provider whether a change in structure is beneficial. Make sure you’re aware of any recent legislative changes affecting LLCs, S Corps, or C Corps, as these could impact which structure offers the most benefits in the new year.
7. How Will §179D Deduction and R&D Tax Credits Affect My Long-Term Growth Plans?
For businesses involved in construction, engineering, architecture, or innovation, the §179D deduction and R&D Tax Credit provide powerful tools for reducing taxes and enhancing cash flow. These benefits can significantly impact long-term growth by freeing up resources for reinvestment, hiring, or technological advancement.
Plan Ahead: If your business could benefit from the §179D deduction, especially with energy-efficient design elements, or if you’re increasing R&D investments, ask your provider to outline how these credits can align with future growth plans.
Final Thoughts
Effective tax planning is essential for managing cash flow, minimizing taxes, and positioning your business for a strong financial future. By asking these strategic questions, you’ll gain valuable insights to maximize deductions, take advantage of available credits, and navigate any post-election tax changes. For small and medium-sized business owners, the right tax strategy isn’t just a year-end exercise — it’s a proactive approach to building a resilient and growth-oriented business.
Start 2025 with a well-prepared tax plan to strengthen your financial foundation and capitalize on every opportunity for savings. Contact National Tax Group to set up a no-cost consultation and see how these credits and deductions can benefit your business.
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