Did you buy a “heavy” business vehicle in 2025? An SUV, pickup or van with a manufacturer’s gross vehicle weight rating (GVWR) over 6,000 pounds…
Continue readingHeavy Tax Breaks for Heavy Business Vehicles
2 Important Changes for Businesses under the New Tax Law
The One Big Beautiful Bill Act (OBBBA) introduces a range of tax changes that will impact businesses. Many provisions set to expire this year are now being extended or made permanent. Below is a snapshot of two important changes to help you with tax planning in the fourth quarter of 2025 and going forward.
How the Deduction for R&E Expenses Has Changed
Under the Tax Cuts and Jobs Act (TCJA), businesses had to amortize deductions for Section 174 research and experimentation (R&E) costs over five years for expenses incurred in the United States or 15 years for those incurred abroad. This provision used a mid-year rule that effectively stretched write-offs over six years. The OBBBA changes that by permanently allowing full, immediate deductions for domestic R&E expenses starting in the 2025 tax year. Foreign R&E expenses will still be amortized over 15 years.
In addition, the OBBBA lets “small businesses” (in 2025, those with average annual gross receipts of $31 million or less for the past three years) claim R&E deductions retroactively to 2022. A business of any size with domestic R&E costs from 2022 to 2024 can choose to speed up the remaining deductions for those years over a one- or two-year period.
How the Business Interest Deduction Has Changed
Generally, the TCJA limited business interest deductions to 30% of the taxpayer’s adjusted taxable income (ATI) for the year. Before the OBBBA, ATI generally referred to earnings before interest and taxes. For tax years beginning after December 31, 2024, the OBBBA increases the cap on the business interest deduction by excluding depreciation, amortization and depletion when calculating ATI. This change typically increases ATI, allowing taxpayers to deduct more business interest expense.
But it’s important to note that, in 2025, taxpayers with average annual gross receipts for the last three years that don’t exceed $31 million are exempt from the interest deduction limitation.
Rethink Tax Planning
For business owners, the OBBBA helps resolve tax planning uncertainty. Keep in mind, these are just two of the key changes for businesses in this tax legislation.
Contact the office to discuss the full range of tax provisions covered by the new law. We can help you optimize any extended or new provisions that are relevant to your situation and reduce your tax obligations for 2025 and beyond.
408-252-1800
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Closing a Business? Here’s How to Stay on Top of Your Tax Duties
Businesses close for various reasons. Perhaps you’re ready to embark on a welcome change such as retirement or launching a new venture…
Continue readingWhat’s Your Business Exit Strategy?
Ever since you became a business owner, you’ve focused on growing revenue, managing expenses and leveraging tax advantages. But don’t overlook a critical element of your long-term financial well-being, that is, a business exit strategy. Ideally, your exit strategy will help you meet your retirement and estate planning goals.
Multiple-Owner Businesses
A buy-sell agreement is a powerful tool for businesses with multiple owners. A well-drafted agreement outlines what happens if specified events occur, such as the owner’s retirement, disability or death. The agreement should:
- Create a ready market for the departing owner’s interest,
- Establish a valuation method, and
- Help prevent disputes by keeping ownership transitions clear.
Life or disability insurance can help fund the buyout and can give rise to several tax issues and opportunities. Life insurance proceeds are generally tax-free to the beneficiary, provided certain conditions are met, making this a tax-efficient strategy.
Family Ownership
If you have family members who are willing and able to fill ownership roles in the business, you can pass your business on by giving them interests, selling them interests or doing some of each. Consider your income needs, the tax consequences, and how family members will feel about your choice.
Under the annual gift tax exclusion, in 2025, you can gift up to $19,000 of ownership interests without using up any of your lifetime gift and estate tax exemption. Valuation discounts may further reduce the taxable value of the gift.
With the gift and estate tax exemption for 2025 at $13.99 million, gift and estate taxes may be less of a concern for some business owners. However, others may want to make substantial transfers now to take maximum advantage of the high exemption. What’s right for you will depend on the value of your business and your timeline for transferring ownership.
Outside the Family
If family succession isn’t the right fit, you might consider selling the business to key employees. This requires significant planning, including executive compensation plans, loans and possibly “key person” life insurance. So you’ll need plenty of time and professional guidance to put the elements in place.
Another option is a leveraged Employee Stock Ownership Plan (ESOP), under which an ESOP trust borrows funds to buy the company. Then stock units are periodically awarded to eligible employees and are eventually vested.
Finally, there’s the option to sell to an outsider. If you can find the right buyer, you may be able to sell the business at a premium. Putting your business into a sale-ready state can help you get the best price. This generally means transparent operations, assets in good working condition and minimal reliance on key people.
For the Best Chance of Success, Start Early
Whatever path you pursue, you want your business to be in good hands in the future. Your exit strategy will require planning well in advance of retirement or any other reason for an ownership transition. Contact the office for assistance.
408-252-1800
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Traveling With Your Spouse on Business? Know What’s Deductible
If you own a company and travel for business, you may wonder whether you can deduct all the costs of having your spouse accompany you on trips. It’s possible, but the rules are restrictive.
When Your Spouse Is Also Your Employee
If your spouse is your employee, you may be able to deduct most of his or her travel expenses. But there are strict rules: You can deduct travel costs only if his or her presence on the trip serves a bona fide business purpose. For example, if you’re attending a trade show and your spouse is one of your company’s leading sales reps, negotiating and closing sales at the show would likely qualify as a bona fide business purpose. But it isn’t sufficient for your spouse to merely be “helpful” in incidental ways, such as by typing your meeting notes.
Similarly, a spouse’s participation in social functions, such as being a host or hostess, generally isn’t enough to establish a business purpose. That is, if his or her purpose is to develop general goodwill for customers or associates, this is usually insufficient. Further, if there’s a vacation element to the trip (for example, if your spouse spends time sightseeing), it will be more challenging to establish a business purpose for his or her presence on the trip. On the other hand, a bona fide business purpose exists if your spouse’s presence is necessary to care for your serious medical condition while you’re traveling for business.
If these tests are satisfied in relation to your spouse, you can claim the typical deductions allowed for business travel away from home. These include the costs of transportation, meals, lodging and incidentals such as dry cleaning and phone calls.
When Your Spouse Isn’t Your Employee
If your spouse isn’t your employee, then even if your spouse has a bona fide business purpose for making the trip with you, you won’t likely qualify to deduct all of his or her travel costs. But you may still be able to deduct a substantial portion of the trip’s costs. This is because the rules don’t require you to allocate 50% of your travel costs to your spouse, only any additional costs you incur for him or her.
For example, in many hotels, the cost of a single room isn’t much lower than a double. If a single room would cost you $150 a night and a double room would cost you and your spouse $200, the disallowed portion of the cost allocable to your spouse would only be $50. In other words, you can write off the cost of what you’d have paid traveling alone. To prove your deduction, ask the hotel for a room rate schedule showing single rates for the days you stay.
If you drive your car or rent one, the cost will be fully deductible even if your spouse is along. Of course, public transportation, meals and any separate expenses incurred by your spouse won’t be deductible.
What Can You Deduct?
While the employee and bona fide business purpose requirements prevent tax deductibility of a spouse’s travel costs in most cases, there are circumstances when some expenses can be deducted. Contact the office if you have questions about this or other tax-related topics.
408-252-1800
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Next-Level Growth: Unlocking Your Business’s Full Potential
After successfully navigating the start-up phase, your business has a strong foundation for growth. At the growth stage, business and financial advisory services become essential. Focus on these two key areas to elevate your company to the next level.
1. Financial and Tax Reporting
Businesses in the growth stage usually have more sophisticated financial reporting needs than start-ups. As a result, those that previously relied on cash or tax-basis accounting methods may need to graduate to accrual-basis methods and start following U.S. Generally Accepted Accounting Principles (GAAP).
Lenders and investors may require CPA-prepared financial statements, which include the following (listed in increasing level of assurance):
- Compilations,
- Reviews, and
- Audits.
Audited financial statements are the gold standard in financial reporting, required for companies regulated by the Securities and Exchange Commission (SEC). However, compiled or reviewed financial statements may suffice for many closely held businesses in the growth stage.
Audits involve a higher level of scrutiny to ensure financial statements are free from material misstatements and comply with GAAP. This process includes analytical testing, asset inspections, third-party verifications, and evaluations of internal controls, with auditors reporting any weaknesses.
Once a business is profitable, federal (and, in many cases, state) taxes typically apply to company income. If the business isn’t structured as a C corporation, the income passes through to owners and is taxed at the individual level.
Regular tax planning meetings with tax professionals are crucial to identify strategies for reducing tax liabilities and preparing for tax law changes. These meetings help optimize your tax position both now and in the future, helping to ensure your business stays financially sound.
2. Working Capital Management
Cash shortages are common for businesses during periods of growth. The main culprit is the “cash gap,” that is, the time between:
- When your business must pay suppliers and employees, and
- When it receives payment from customers.
For businesses that make or build products from scratch, the time to convert materials and labor into finished goods, sales and (finally) cash receipts can be significant.
A line of credit can alleviate seasonal or temporary cash crunches. Before approving credit applications, lenders typically request financial statements, tax returns and updated business plans. In addition, business owners in the growth phase typically must sign personal guarantees for business loans.
You also may need to apply other cash management techniques that target the following three components of working capital:
- Receivables,
- Inventory, and
- Payables.
Professional advisors can assess your working capital metrics, benchmark performance against competitors, and recommend strategies to improve your business’s financial efficiency and competitiveness. These might include accelerating collections, optimizing inventory levels, maintaining safety stock, and negotiating better supplier terms.
Ask the Pros
Businesses need guidance from experienced professional advisors as they mature. Do-it-yourself accounting, tax and business planning can result in frustration and missed opportunities. If you haven’t done so already, it’s important to obtain the appropriate professional advice for your business. Feel free to reach out to our team if you’re looking for support!
408-252-1800
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