Why Businesses Need to Use More Tax Incentives
There are ugly rumors out there telling us that tax incentives for businesses are gone. We aren’t a tax planner. Yet our tax professional partners as well as our financial planning experience has revealed several tax incentives for savvy entrepreneurs. What follows are several programs our clients leverage to facilitate their business goals.
1st Tax Incentives Such as Equipment Purchase Deduction (Section 179)
This tax incentives provision allows businesses to deduct the full purchase price of qualifying equipment and software the tax year of installation. For 2025, the maximum deduction is $1.25 million, with a phase-out threshold of $3.13 million. This means businesses can deduct up to $1.25 million of the cost of qualifying equipment. Additionally, the deduction begins to phase out dollar-for-dollar after $3.13 million in purchases.
2- Bonus Depreciation
In 2025, businesses can deduct 40% of the cost of qualified property when the property is placed in service. This incentive applies to new and used property with a recovery period of 20 years or less. It includes machinery, equipment, and certain improvements. Currently, bonus depreciation is scheduled to decrease by 20% each year. Of course the property in question must be used in your business for taxable income producing activities.
3- Research and Development (R&D) Tax Credit
Businesses investing in R&D can benefit from this credit, which encourages innovation by offsetting a portion of research expenses. The credit amount varies based on qualified research expenditures. It can significantly reduce tax liability for companies developing new or improved products, processes, or technologies. Often the application process is where businesses lose out on this credit. That is why we began helping clients navigate the required paperwork. Our current congress hopes to restore full R&D expensing along with 100 percent bonus depreciation and an easier formula for net interest expensing.
4 – Work Opportunity Tax Credit (WOTC)
The WOTC provides tax incentives for businesses to hire individuals from certain target groups that face significant barriers to employment. Groups such as veterans, ex-felons, and long-term unemployed individuals are included. The credit amount varies depending on the employee’s target group, wages paid, and hours worked. In a nutshell, potential credits range from $1,200 to $9,600 per qualified employee.
5 – Energy Efficient Commercial Buildings Deduction (Section 179D)
This deduction encourages businesses to invest in energy-efficient improvements to commercial buildings. Eligible improvements include energy-efficient lighting, HVAC systems, and building envelopes. When the improvements achieve a 50% reduction in energy and power costs comparatively. The deduction can be up to $1.80 per square foot of the building.
6 – Qualified Business Income (QBI) Tax Incentives
This deduction allows owners of pass-through entities (sole proprietorships, partnerships, S corporations) to deduct up to 20% of their qualified business income. For 2025, the phase-out thresholds for the deduction begin at $394,600 for married filing jointly. For other filers the deduction threshold begins at $197,300, adjusted for inflation.
7 – Removal of SALT Deduction Cap:
The State and Local Tax (SALT) deduction cap, previously limited to $10,000, is set to expire December 31, 2025. This change benefits businesses operating in high-tax states by allowing a full deduction of state and local taxes paid. Potentially significant tax savings can result.
As business owners, you can benefit by staying informed about these incentives. Take a moment to consult with your with tax professional to effectively incorporate these into your tax planning strategies. Tax laws are subject to change, and professional guidance ensures compliance and optimization of available benefits.