Bloomberg Tax Outlines Five Key Year-End Strategies
Brian Fine, CPA and partner at Alpine Mar, recently published an analysis in Bloomberg Tax Management Memo outlining five year-end tax strategies for small and mid-size businesses.
His framework covers the major opportunities created by the One Big Beautiful Bill Act (OBBBA), from accelerated depreciation to S Corp election timing.
The strategies Fine identifies are sound: leverage 100% bonus depreciation, evaluate your accounting method, review S Corp election timing, maintain proportional distributions, and optimize for the Section 199A deduction. Each represents a legitimate opportunity to reduce tax liability before December 31.
But after two decades of working with businesses on fixed asset strategy and tax planning, I've watched companies stumble on these same moves year after year. The strategies themselves are straightforward. The execution is where things fall apart.
What follows is a practical expansion of Fine's framework, adding the operational considerations that determine whether these strategies actually deliver results.
Strategy One: Accelerate Asset Purchases for Bonus Depreciation
Fine correctly notes that the OBBBA restored 100% bonus depreciation for most tangible property with a recovery period of 20 years or less, including used assets, acquired after January 19, 2025.
He emphasizes that purchasing equipment before year-end allows businesses to deduct the full cost immediately rather than spreading it across a multi-year depreciation schedule.
The Execution Gap Most Businesses Miss
The advice is accurate, but incomplete. Three operational realities determine whether this strategy works:
The January 19 cutoff matters more than December 31. Assets acquired and placed in service between January 1 and January 19, 2025 only qualify for 40% bonus depreciation under the prior phase-down rules.
Everything after January 19 gets the full 100%. If your business made significant purchases in early January, those assets are subject to different treatment. Most businesses haven't reviewed their 2025 acquisitions with this date in mind.
"Placed in service" has a specific meaning. Equipment ordered in December that arrives January 5 doesn't qualify for your 2025 return. The asset must be operational and available for use in your business by December 31.
For complex equipment requiring installation or configuration, this timeline gets tight. A manufacturing company that orders a CNC machine on December 10 with a two-week lead time and a week of installation will miss the 2025 window entirely.
Your asset records determine your actual deduction. Bonus depreciation calculations require accurate cost basis, acquisition dates, and asset classifications. If your fixed asset register contains errors, whether from incorrect capitalization, missing disposal records, or misclassified property types, your depreciation calculations will be wrong.
A comprehensive fixed asset depreciation guide can help establish the foundation for accurate calculations.
State conformity adds another layer. Many states don't follow federal bonus depreciation rules. California, for example, doesn't conform to federal bonus depreciation at all.
If your business operates in multiple states, you may need to maintain separate depreciation schedules for federal and state purposes. This isn't a reason to avoid the strategy; it's a reason to plan for the administrative complexity it creates.
Strategy Two: Evaluate Cash vs. Accrual Accounting
Fine outlines the timing advantages of each method. Cash-basis businesses can defer income by holding invoices and accelerate deductions by paying expenses early.
Accrual-basis businesses can deduct year-end bonuses even when paid in early January and defer revenue recognition on advance payments.
When Each Method Actually Provides Advantage
The choice between cash and accrual accounting isn't just about flexibility. It reflects how your business operates and where your cash flow patterns create natural tax timing opportunities.
Cash accounting favors businesses with control over billing timing and consistent expense patterns. A consulting firm that completes a $75,000 project in December can hold the invoice until January 2, pushing that income into 2026.
Combined with prepaying January expenses like insurance premiums or rent before December 31, the timing shift can move tens of thousands of dollars between tax years.
Accrual accounting favors businesses that regularly receive advance payments or that want to deduct year-end compensation immediately. A software company that receives annual subscription payments in December can defer revenue recognition until the service period.
A professional services firm can declare and deduct December bonuses even when paid in January.
The practical consideration most businesses overlook: these timing strategies require discipline throughout the year, not just in December. A cash-basis business that habitually invoices immediately loses the flexibility to defer income when it matters.
An accrual-basis business that doesn't track accrued expenses carefully may miss deduction opportunities.
Strategy Three: Review S Corporation Election Timing
Fine notes that LLCs and partnerships can file Form 2553 to elect S Corp taxation, with standard deadlines of March 15 for existing entities. He correctly points out that the IRS often grants late elections when specific requirements are met.
The Real Math Behind S Corp Savings
S Corp taxation reduces self-employment tax by allowing business owners to split income between salary (subject to FICA) and distributions (not subject to FICA). The savings can be substantial, but they depend on sustainable net income levels.
The general threshold: businesses with consistent net income above $80,000-$100,000 typically see meaningful savings. Below this level, the administrative costs of S Corp compliance, including payroll processing, reasonable compensation documentation, and additional filing requirements, may exceed the tax benefit.
The "reasonable compensation" requirement creates the constraint. The IRS requires S Corp owner-employees to pay themselves a salary that reflects what they would earn for similar work at another company.
Pay yourself too little, and you risk reclassification of distributions as wages plus penalties. Pay yourself too much, and you've eliminated the FICA savings that made S Corp election attractive.
For businesses considering a late S Corp election for 2025, the deadline pressure is real. While the IRS does grant late elections, approval isn't automatic. If your business would benefit from S Corp status, start the process now rather than assuming you can file retroactively after year-end.
Strategy Four: Maintain Proportional Distributions
Fine emphasizes that S Corporations must maintain proportional distributions among shareholders to preserve their tax status under the "one class of stock" requirement. Disproportionate distributions, even accidental ones, risk IRS reclassification.
How Distribution Problems Actually Happen
Most S Corp distribution violations aren't intentional. They result from operational decisions that create de facto economic differences between shareholders.
Common scenarios that trigger problems:
- shareholders take distributions at different times during the year based on personal cash needs
- the company pays expenses on behalf of one shareholder but not others
- shareholders receive different fringe benefits without corresponding adjustments
- loan repayments to shareholder-lenders aren't coordinated with distributions to other owners.
The year-end remediation process is straightforward but time-sensitive. Calculate the cumulative distributions to each shareholder for 2025. Identify any disproportionate amounts.
Make equalizing distributions before December 31 to correct imbalances. Document the corrective action with board resolutions or written consent of shareholders.
The documentation matters as much as the correction. If the IRS examines your S Corp status, you want clear evidence that any disproportionate distributions were inadvertent and promptly corrected, not a pattern of economic discrimination among shareholders.
Strategy Five: Maximize the Section 199A Deduction
Fine notes that the 199A deduction allows pass-through businesses to deduct up to 20% of qualified business income, subject to W-2 wage limitations. He suggests that increasing employee bonuses or owner salary before year-end can raise the W-2 wage base and potentially increase the allowable deduction.
The Asset Basis Component Most Businesses Overlook
The QBI deduction calculation includes two alternative limitation methods for taxpayers above the income thresholds. The first limits the deduction to 50% of W-2 wages paid. The second allows 25% of W-2 wages plus 2.5% of the unadjusted basis of qualified property.
That 2.5% asset basis component gets overlooked because it requires accurate fixed asset records to calculate. For capital-intensive businesses, this component can significantly increase the allowable deduction.
Consider a manufacturing company with $300,000 in qualified business income, $100,000 in W-2 wages, and $800,000 in unadjusted basis of qualified property. Under the 50% W-2 limitation, the deduction caps at $50,000.
Under the alternative calculation (25% of wages plus 2.5% of asset basis), the limitation is $45,000. The 50% W-2 method wins in this case.
But change the scenario: same income, $60,000 in W-2 wages, and $1,200,000 in qualified property basis. Now the 50% W-2 limitation is $30,000, while the alternative method yields $45,000. The asset basis component increases the allowable deduction by 50%.
The practical implication: businesses with significant fixed assets should ensure their asset registers are complete and accurate before year-end. Missing assets or incorrect basis amounts directly reduce the potential QBI deduction.
The Operational Foundation: Why Asset Records Determine Tax Outcomes
Three of Fine's five strategies depend directly on fixed asset data: bonus depreciation calculations require accurate cost basis and acquisition dates; Section 179 elections require proper asset classification; and the QBI deduction's asset basis component requires a complete and accurate property register.
This creates an uncomfortable reality for many businesses: the tax strategies are only as good as the underlying records that support them.
Common asset record problems that undermine tax planning include:
- ghost assets (equipment that's been disposed of but never removed from the register
- inflating your property tax basis)
- missing acquisitions (assets purchased through departmental budgets or credit cards that never made it into the fixed asset system)
- incorrect classifications (assets categorized under the wrong depreciation method or recovery period)
- and incomplete disposal records (creating a mismatch between your books and your tax returns)
If your business hasn't conducted a physical inventory reconciliation recently, December is not the time to start one. But it is the time to review your current asset register for obvious errors and to establish processes for accurate tracking going forward.
A Practical Timeline for December
Week 1-2: Review your 2025 asset acquisitions. Identify any purchases made between January 1-19 that are subject to the 40% bonus depreciation rate. Confirm that all assets intended for 2025 depreciation have been placed in service.
Week 2-3: Calculate your S Corp distribution totals for each shareholder. If disproportionate distributions exist, arrange for equalizing payments before year-end. Document the corrections.
Week 3-4: Model your QBI deduction under both limitation methods. If the asset basis component could increase your deduction, verify that your fixed asset register is complete.
Ongoing: If you're considering asset purchases specifically for tax purposes, confirm delivery and installation timelines. Equipment that arrives in January provides no 2025 benefit regardless of when you place the order.
Fine's Bloomberg Tax article provides a solid strategic framework. The five strategies he outlines represent genuine opportunities to reduce 2025 tax liability. But strategy and execution are different disciplines.
The businesses that capture the full benefit of these provisions are the ones with clean records, realistic timelines, and attention to the operational details that determine whether a tax strategy actually works.
Frequently Asked Questions
What is the deadline for claiming bonus depreciation in 2025?
Assets must be acquired and placed in service by December 31, 2025. Both conditions must be met. Ordering equipment in December that arrives in January doesn't qualify for your 2025 return.
Can I claim both Section 179 and bonus depreciation on the same asset?
Yes, in certain situations. Section 179 is applied first, then bonus depreciation can apply to any remaining basis. However, Section 179 has income limitations while bonus depreciation does not, so the optimal approach depends on your specific tax situation.
What assets qualify for 100% bonus depreciation under the OBBBA?
Most tangible personal property with a MACRS recovery period of 20 years or less qualifies, including machinery, equipment, computers, furniture, and certain vehicles. Used assets now qualify if the property wasn't previously used by the taxpayer.
How can I reduce my small business taxes before year-end?
Primary strategies include accelerating deductible equipment purchases, maximizing retirement plan contributions, timing income and expense recognition, and ensuring you're capturing all available deductions like the QBI deduction and applicable tax credits.
Is 100% bonus depreciation permanent under the new tax law?
The OBBBA made 100% bonus depreciation permanent for qualified property acquired and placed in service after January 19, 2025. This ends the phase-down that was scheduled under the original Tax Cuts and Jobs Act.
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