As the end of 2025 approaches, individuals and businesses alike are met with a difficult task: year-end planning. This year specifically provides unique opportunities and considerations given the passage of the One Big Beautiful Bill Act (OB3, OBBBA, or the Act). As one of the most significant pieces of tax legislation to be enacted over the last four decades, it can be overwhelming to try to understand the myriad ways that the Act’s tax provisions may affect your personal or business tax situations, potentially leaving you with some unanswered questions. Layered with broader year-end tax planning strategies, this time before the end of the year may be crucial in implementing the new OB3 provisions. We have distilled down our “Top 10” year-end planning tips for you to take advantage of the new Act and answer some of these questions.
With All These Changes, How Can I Project My Estimated Tax Liability?
The Act introduced many changes to the tax landscape that are generally beneficial to taxpayers. Provisions within the Act include immediate deductions of certain tangible assets used in a business (bonus depreciation) and for research and development (R&D) activities, and expanded opportunities to take deductions for business interest expense and state and local taxes (SALT), as well as international tax regime changes and more. These variables are all intertwined, and the implementation of one can affect the tax impact of another.
There is an effective way to manage all these variables, and that is by modeling. Using sophisticated proprietary tools developed by professionals from Forvis Mazars, we can map multiple scenarios to estimate the net impact of the Act on your business’s tax liability for several years into the future. The results may not align with expectations. For example, our modeling has shown that taking 100% bonus depreciation or immediately deducting R&D costs may not be beneficial in all circumstances. Furthermore, partnerships and S corporations may have additional complexity in the analysis due to the interplay between entity rules and individual rules.
Our planning tip: Model key decision points and overall changes from OB3 tax provisions to help determine the potential impact on your tax situation.
The Estate & Gift Tax Exemption Is Remaining High; Do I Still Need Estate Planning?
Beginning in 2026, the estate and gift tax exemption will be at a historic high of $15 million per taxpayer, or a combined $30 million for married taxpayers. Every year thereafter, the amount will be adjusted for inflation. This exemption allows for assets to be passed on to heirs or charities without incurring taxes.
Regardless of whether the value of your estate is above or below this threshold, we recommend you have an estate plan in place. This strategic plan can address legal concerns and provide a road map to effectuate your desires at your passing. For those with large estates beyond the threshold, tax planning strategies such as “freeze,” “squeeze,” and “burn” techniques can help you take advantage of the exemption and enhance the amount of wealth you can transfer while reducing taxes on your estate.
A “freeze” technique provides for an asset’s value to be “frozen” at fair market value as of the date of its transfer, thereby allowing subsequent appreciation to occur outside of the transferor’s estate, potentially free of gift and estate tax.
“Squeeze” techniques involve the transfer of assets and applying valuation discounts due to a lack of marketability and lack of control, thereby reducing the value of the asset upon transfer. This strategy not only preserves more of your lifetime gift and estate tax exemption but also allows for subsequent appreciation to grow outside of your estate.
The transfers described under the “freeze and squeeze” techniques may be done in such a way that assets are removed from your estate while you still pay tax on any income generated by the assets. This strategy, also known as the “burn” technique, allows for your heirs to receive the assets without the burden of paying taxes generated by them. By paying the taxes, you are also reducing your estate to help lower the estate tax impact on your passing.
These techniques can be applied individually or in combination with each other. Here is an example combining all three techniques:
A taxpayer owns a closely held business valued at $10 million. She desires to transfer future appreciation of her business to her children while reducing estate and gift taxes. The taxpayer sets up an irrevocable trust (in this case we will use an intentionally defective grantor trust (IDGT)) and names her children as the beneficiaries. The business is then sold to the trust in exchange for a promissory note. This is not a taxable event as the sale is to a grantor trust, and the taxpayer is the grantor.
In this example, the “freeze” technique is demonstrated as the taxpayer has “frozen” the $10 million business asset value in her estate, in the form of a promissory note, while the business appreciates out of her estate.
The “squeeze” technique applies because this is a closely held business. As such, when valuing the business upon sale to the trust, a discount for lack of marketability may be subtracted from its value. For example, if the lack of marketability discount was determined to be 20%, the business would sell to the trust for $8 million. This results in $10 million of business asset being transferred out of the estate while retaining an $8 million promissory note in the taxpayer’s estate—netting a $2 million preservation of the taxpayer’s estate and gift tax exemption.
Finally, the “burn” technique comes into play due to the use of the IDGT. In this structure, the taxpayer will still pay taxes on the income generated by the business held by the trust, further reducing her taxable estate.
Our planning tip: Establish or review your estate plan considering the new Act with a trusted tax advisor regardless of your estate’s size.
Has 100% Bonus Depreciation Been Restored & Can I Immediately Deduct Real Property Costs?
Businesses that acquire and place into qualified tangible personal property after January 19, 2025 may immediately deduct the cost of the property. While bonus depreciation is not new, the amount eligible for immediate deduction has slowly been declining since 2022 from 100% of the cost down to 40% of the cost in early 2025. Therefore, leveraging cost segregation studies now has even more impact for taxpayers wanting to identify bonus-eligible property. Further, during compliance season for your 2025 return, consider via modeling whether it would be beneficial to take the 100% deduction, opt for the 40% (or 60% in some cases) deduction, or elect out of bonus altogether.
In addition, nonresidential real property used in manufacturing, production, or refining activities may now be eligible for an immediate deduction. Said another way, manufacturers may be able to “expense” the cost of their manufacturing facilities. The availability of this deduction is temporary and has some strings attached to ensure the property is eligible.
Construction on eligible property must commence after January 19, 2025 and before January 1, 2029 and must be placed in service before January 1, 2031. For more detailed information on this deduction, read our FORsights™ article on the topic. This immediate deduction may be significantly beneficial to those who qualify considering this type of property normally carries high value and will return to a 39-year depreciation life (thereby ineligible for immediate deduction) after this provision expires.
Our planning tip: It is generally advisable to take advantage of bonus depreciation, but as mentioned earlier, make sure you model the impact on your overall taxable income situation to help avoid negative impacts. For qualified production property, the clock is ticking to get a qualifying asset placed into service; therefore, we recommend you talk to a trusted tax advisor soon and learn what needs to be done to take advantage of the opportunity. Other considerations related to this provision include:
- Analysis of what qualifies as “manufacturing” (consideration of substantial transformation)
- Inclusion of a cost segregation study to identify portions of the facility with a non-qualifying activity, e.g., administrative office, engineering, etc.
- Consideration of the binding contract rules for self-constructed property
- 10-year recapture provision and implications for transactions
Is There an Ideal Year to Make Contributions to Charities?
There are a few things to think about when it comes to charitable contributions considering the Act. For corporations, there will be a 1% floor on charitable contributions, and for individuals, a 0.5% floor for tax years beginning after December 31, 2025. This means that only the amount donated in excess of these floors will be potentially deductible. Layered on top of that, individual taxpayers in the top 37% tax bracket will also be subject to a ceiling limitation, capping the benefit of their itemized deductions (including charitable contributions) at 35%.
It is interesting to note that contributions limited by the floor do not carry forward into future years unless there is also an excess contribution resulting from the ceiling limitation.
Our planning tip: It may be advisable for corporate and individual taxpayers to accelerate multiple years’ worth of charitable contributions (often called “bunching”) into 2025 to avoid the new floor and ceiling limits coming in 2026. The use of a donor-advised fund may allow a taxpayer to contribute and receive a deduction in 2025 but spread the actual dollars going to charities over future years. Corporations should also review their expenditures with charities to see if any amounts would be properly characterized as advertising or promotional expense not subject to the new limitation.
What Are Some Strategies for Buying or Selling a Business?
Stockholders of qualifying C corps may be eligible for expanded benefits under §1202 when selling their stock. For stock issued after July 4, 2025, the qualified small business stock (QSBS) exclusion has been enhanced, allowing for a 50% gain exclusion upon the sale of stock if it is held by the taxpayer for at least three years, 75% after four years, and the full 100% after five years. The exclusion is limited to the greater of $15 million (up from $10 million previously) or 10 times the stock’s basis. A qualifying business is those with gross assets valued at up to $50 million at the time the stock was issued. The OB3 expanded the eligibility criteria to assets of $75 million for stock issued after July 4, 2025. The changes for new QSBS will expand its availability and give owners additional flexibility to dispose of their stock prior to the historic five-year period.
The Act also expanded the potential deductibility of business interest expense under §163(j) and restored 100% bonus depreciation. By restoring the ability to add back depreciation and amortization to the calculation of allowable deductible business interest, thereby potentially increasing interest deductions, debt financing in merger and acquisition (M&A) transactions may be more attractive. The combination of increased interest expense limitations and 100% bonus depreciation may make it feasible to do a tax-favored asset acquisition in lieu of a stock purchase.
Our planning tip: Considerations of the tax impact and timing of buying or selling interest in a business may have changed since the Act’s passage. Contact a trusted tax advisor well in advance of engaging in a potential transaction to help with structuring deals with these changes in mind.
What Payroll Considerations Do I Need to Make When Reporting Wages From Tips or Overtime for My Employees?
Presidential campaign proposals including “no tax on tips” and “no tax on overtime” were addressed in the Act. While the tax benefits of such provisions primarily accrue to the employee, employers have reporting obligations because of these provisions. Not only should employers communicate to their employees about what to expect, but they should also be aware of payroll reporting requirement changes that will need to be made. It will be crucial to coordinate with your payroll provider, HR department, and legal counsel to help ensure accurate tracking and compliance with these new rules.
Available for tax years 2025 through 2028, taxpayers may claim a $25,000 deduction against qualifying tip income. According to proposed regulations released by the IRS, only occupations that “traditionally and customarily” received tips on or before December 31, 2024 may qualify and tips must be made voluntarily and in cash (or cash equivalent like bank cards). This means that tips (such as automatic service charges for large parties at a restaurant) wouldn’t qualify, nor would any pre-included tips. The deduction phases out for employees with modified adjusted gross income (AGI) over $150,000 ($300,000 if married filing jointly).
Over the same period, overtime as defined under the Fair Labor Standards Act (FLSA) in excess of regular pay may be eligible for a $12,500 deduction ($25,000 married filing jointly). Identical modified AGI limits also apply. The rules surrounding the overtime deduction have caught many employers and employees by surprise. As an example, some employers pay their employees double their normal pay for working on holidays. If the regular pay rate for this employee is $20 per hour, and the FLSA overtime rate for this employee is time and a half (or $30), then the only portion eligible for the deduction is the $10 difference between the two, even if the employee was paid $40 total for working on a holiday.
The IRS did provide penalty relief to employers for the requirement to track and report qualifying employee tip and overtime income to employees for the 2025 tax year. However, employers will need to track and report this information to their employees on their Form W-2 beginning for tax year 2026. These wages are still subject to withholding and FICA taxes. The IRS has already said it will not update Forms W-2 or W-4 for the 2025 tax year; therefore, businesses will still need to withhold at the current rates. Drafts of the 2026 forms have been made available and include withholding adjustments for these new provisions.
Our planning tip: We recommend not only receiving advice from a tax advisor, but also legal and payroll professionals to determine what information tracking and reporting your company may need to provide employees with the necessary information to take deductions on tips and overtime wages.
Are Any Clean Energy Credits Still Available?
Just reading the news, you may get the impression that the Act did away with all clean energy credits. It is true that certain credits have been terminated altogether and others altered. However, while electric vehicle (EV) and residential clean energy credits were mostly terminated, developers and investors of certain clean energy property and purchasers of clean energy credits can still benefit from credits.
Solar and wind property projects may still qualify for credits if they begin construction by July 4, 2026. Otherwise, these projects need to be completed and placed into service by December 31, 2027. Bonus credits are also still available for projects complying with the prevailing wage and apprenticeship (PWA) requirements as well as a bonus for the use of domestic content (to name a few).
Be wary of the “foreign entity of concern” rules, which may affect your ability to claim a credit based on where property components are sourced, the ownership structure of your entity, and how your debt may be structured. You may need to consider changing vendors or restructuring ownership and debt situations to comply with these rules and benefit from the credits.
Our planning tip: There are still opportunities for clean energy credits although the requirements to claim such credits are more onerous. “Transferring” credits (selling credits to third parties) is still available, meaning taxpayers looking to offset their income tax liabilities may want to consider purchasing (at a discount) available clean energy credits on the market. Further, those interested in investing in property like geothermal property or qualifying heat pumps can still claim a credit with a “five-time” multiplier when complying with PWA rules. Explore our PWA services here.
What State Income Tax Considerations Should I Be Thinking About?
The federal Act is now law, but what about state conformity to these laws? For many states, this still needs to be decided and may be a significant factor in your total tax liability. States that impose an income tax generally fall into one of three categories of federal tax law conformity: rolling conformity, fixed date conformity, and selective conformity.
States that have implemented rolling conformity generally conform to federal law when it is passed. For example, if bonus depreciation is allowed for federal income tax purposes, a rolling conformity state will also allow bonus depreciation for state income tax purposes following the federal government’s rules.
A fixed date conformity state will pass legislation to conform to federal income tax laws “as of” a certain date. This can cause discrepancies between federal income tax and state income tax laws at varying dates.
Some states selectively determine on a provision-by-provision basis which federal income tax laws apply to their state income tax laws. This can be a slow process and result in many differences between federal and state income tax provision treatment.
Our planning tip: Multijurisdictional companies may find it difficult to keep up with the various state income tax laws. Avoid assumptions; just because a deduction is available for federal income tax purposes, it may not be available for state income tax purposes. States are still determining to what extent they will conform to the Act, contemplating such things as their budgets, political pressure, and precedent. Again, modeling can be a powerful tool to help navigate potential state tax outcomes based on different conformity scenarios.
What Are Some Strategies to Help Mitigate Tariff Exposure?
With broad implementation of reciprocal and other types of tariffs, 2025 provided a watershed moment propelling tariffs into the economic and fiscal forefront for businesses and individuals. Adaptation to tariff regimes and mitigation strategies has become more pressing for U.S. importers over the past year. For continued updates of the changing tariff landscape and rates, be sure to subscribe to the “tax” email list for our weekly publication, From the Hill.
Our planning tip: Navigating tariffs requires both financial and legal prowess to implement mitigation measures such as classification planning, unbundling, first sale rule consideration, transfer pricing, and use of bonded warehouses. Performing thorough sourcing studies for your business may uncover opportunities to alter your procurement strategy and avoid costly tariffs. Check out our tariffs webpage for additional insights and resources.
What Can I Expect With Tax Policy & Guidance in 2026?
While the Act sets forth new tax provisions in the general sense, additional guidance will be needed from the U.S. Department of the Treasury and the IRS to fully understand and properly implement them. The first item listed on Treasury’s 2025-2026 Priority Guidance Plan is the implementation of the Act.
The foundation has also begun to be laid for another tax reconciliation bill that may cover items such as technical corrections for the OB3, an enhanced pass-through entity deduction, carried interest, the §899 “revenge tax,” digital asset taxation, and retirement savings. However, given the recent government shutdown and the political capital spent on the OB3, the likelihood of such a bill remains questionable.
Our planning tip: As the saying goes, “knowledge is power.” We recommend staying current on tax updates through various avenues available to you. On our WNTO page, you can find thought leadership content; subscribe to our FORsights; engage with the weekly publication of “From the Hill” covering important updates from Congress, the presidential administration, the courts, Treasury, the IRS, and the states; and tune into the biweekly podcast, “Tackling Tax,” which features prominent individuals from the profession providing knowledge and insights into all things tax.
For more information, please refer to our article, “Timeline of OB3 Tax Updates: What’s Changing & When.”
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