As year-end approaches, professional service firms — whether consulting firms, law offices, or creative agencies — should take a proactive approach to tax planning to minimize their tax burden. This year brings significant changes with the introduction of the One Big Beautiful Bill Act (OBBBA), which includes key tax law extensions and new provisions that could directly impact your business. By collaborating closely with your tax advisers, firms can leverage a range of strategies and opportunities to optimize their financial position and stay ahead of regulatory changes.

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Qualified Business Income (QBI) Deduction

Learn how the Section 199A Qualified Business Income Deduction (QBI) can save professional service firms up to 20% on taxable income. Discover eligibility, income thresholds, and a key planning strategy to maximize your deduction.

The Section 199A Qualified Business Income Deduction (QBID) allows eligible taxpayers to deduct up to 20% of qualified business income (QBI), subject to certain limitations. Thanks to the One Big Beautiful Bill Act (OBBBA), this valuable deduction—originally set to expire after 2025—has now been permanently extended, making it a cornerstone of tax planning for business owners. Eligible taxpayers include individuals, trusts, and estates who are partners in partnerships (including certain LLC members), S corporation shareholders, and sole proprietors. Generally, the deduction applies to income earned from a qualified trade or business (QTB). Most businesses qualify, except those classified as a Specified Service Trade or Business (SSTB)—fields such as health, law, accounting, consulting, performing arts, financial services, and other businesses where the principal asset is the reputation or skill of owners or employees.

Even if your firm is considered an SSTB, you may still qualify for the full deduction if your taxable income is below certain thresholds: $394,600 for married filing jointly or $197,300 for all other filers. For non-SSTBs, once income exceeds $544,600 (married filing jointly) or $272,300 (all others), the deduction becomes subject to additional limitations. In these cases, the QBID is capped at the lesser of 20% of QBI, 50% of W-2 wages paid by the business, or 25% of W-2 wages plus 2.5% of the unadjusted basis of qualified property. Because of these thresholds and wage/property limitations, maximizing the QBI deduction requires proactive planning—especially for professional service firms where income levels often approach or exceed these limits.

The QBI deduction can significantly reduce your taxable income, but it’s not automatic. One common and highly effective planning technique is adjusting reasonable compensation for S corporation owners. By strategically balancing wages and distributions, you can optimize payroll taxes while preserving QBI eligibility—often resulting in thousands of dollars in tax savings.

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Review Reasonable Compensation For S-Corporation Owners

Learn why reasonable compensation for S corporation owners matters for IRS compliance and tax planning. Discover key factors and a smart year-end strategy.

Reasonable compensation is the amount that would typically be paid for similar services by similar businesses under similar circumstances. The IRS uses a multi-factor approach to determine reasonableness, considering qualifications, job duties, business size, industry standards, and economic conditions. No single factor is decisive; all facts and circumstances matter.

For S corporation shareholder-employees, reasonable compensation is critical. If wages are too low, the IRS may reclassify distributions as wages, triggering payroll taxes and penalties. Compensation paid to relatives must also reflect what would be paid to an unrelated party for the same services.

Setting reasonable compensation isn’t just about compliance—it’s a tax planning tool. By adjusting shareholder wages strategically, you can balance payroll taxes with QBI eligibility.

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Leverage Bonus Depreciation and Section 179

Bonus depreciation is back at 100% under the OBBBA. Learn how professional service firms can leverage this powerful deduction for year-end tax savings.

Bonus depreciation allows taxpayers to claim additional first-year depreciation on eligible assets, providing an immediate deduction rather than spreading it over several years. Historically, this percentage has varied, but thanks to the One Big Beautiful Bill Act (OBBBA), bonus depreciation has been permanently extended and restored to 100% for property acquired and placed in service on or after January 19, 2025.

This means businesses can fully deduct the cost of qualifying equipment, technology, and certain improvements in the year they’re purchased—significantly reducing taxable income and improving cash flow.

If your firm is considering technology upgrades, office equipment, or other qualifying purchases, accelerating these acquisitions before year-end can unlock substantial tax savings. Pairing bonus depreciation with Section 179 expensing can further maximize deductions.

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Vehicle Deduction Strategies for Business Owners

Discover the best way to deduct vehicle expenses for your business—standard mileage or actual expenses—and how to maximize your tax savings.

Business owners generally have two choices for writing off vehicle costs:

• Standard Mileage Rate Method: For 2025, the IRS standard rate is 70 cents per mile. This method is straightforward—just track your business miles. The rate is designed to cover depreciation, fuel, maintenance, and insurance, making it a simple solution for many firms.
• Actual Expense Method: This approach allows you to deduct the business-use portion of actual costs, including fuel, repairs, insurance, registration, lease payments, and depreciation. While it requires more detailed recordkeeping, it can result in larger deductions for vehicles with higher operating costs.

The standard mileage method offers simplicity, while the actual expense method may provide greater savings depending on your situation.

The best strategy is to track both methods throughout the year and choose the one that delivers the greatest tax benefit. This proactive approach ensures you don’t leave money on the table.

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Maximize Year-End Deductions with the De Minimis Safe Harbor Election

Learn how the de minimis safe harbor election can simplify expense deductions for small purchases and reduce your tax burden.

The de minimis safe harbor election allows businesses to deduct certain amounts paid for tangible property rather than capitalizing them. To qualify, the taxpayer must make an annual election on a timely filed income tax return (including extensions) by attaching a statement to the return.

The safe harbor applies to:

• Up to $5,000 per invoice (or item) for taxpayers with an applicable financial statement (AFS)
• Up to $2,500 per invoice (or item) for taxpayers without an AFS

Taxpayers with an AFS must have written accounting procedures in place at the beginning of the tax year and expense these amounts on their financial statements. Those without an AFS do not need written procedures but must expense the amounts on their books and records. The election is irrevocable and must be made annually; late elections require IRS consent. Importantly, this safe harbor is not considered a change in accounting method, so Form 3115 is not required.

The de minimis safe harbor is a simple way to expense small-dollar purchases immediately, reducing taxable income without complex depreciation schedules. A common planning technique is to review capitalization policies before year-end to ensure compliance and maximize deductions.

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Pass-Through Entity Tax Elections: A Smart Strategy For Firm Owners to Beat the SALT Cap

Pass-through entity tax (PTET) elections help business owners bypass the SALT deduction cap. Learn how PTET works and why it’s a valuable year-end strategy.

The Tax Cuts and Jobs Act (TCJA) capped the deduction for state and local taxes (SALT) on individual returns, limiting many business owners’ ability to fully deduct these expenses. To address this, many states now offer a Pass-Through Entity Tax (PTET) election, allowing partnerships and S corporations to pay state income taxes at the entity level.

This election shifts the deduction from the individual to the business. As a result, shareholders and partners benefit from reduced pass-through income, effectively bypassing the SALT limitation. However, PTET rules vary by state, including election deadlines, payment requirements, and filing procedures. Careful planning is essential to ensure compliance and maximize savings.

PTET elections can deliver significant tax benefits, especially for owners in high-tax states. A smart year-end strategy is to review state-specific rules early and make estimated payments before December 31st to maximize the deduction.

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Retirement Plan Contributions

Retirement plans remain one of the most efficient ways to reduce current‑year taxes while building long‑term wealth. Options like 401(k)s, SIMPLE IRAs, and SEP IRAs offer distinct contribution mechanics and deadlines, giving firms flexibility to match cash flow and owner goals. Year‑end planning should confirm plan establishment requirements, coordinate employee deferrals and employer contributions, and model how funding interacts with QBI and reasonable compensation.

Maximize deductions by combining salary deferrals with employer contributions. Confirm whether your chosen plan must be established by December 31 and map funding across the year‑end and filing‑deadline windows to optimize cash and tax outcomes.

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Putting It Into Action

For service firms, year‑end is the best time to convert policy changes and classic tax tools into practical, defensible savings. Prioritize QBI and reasonable compensation, evaluate PTET by state, deploy 100% bonus depreciation where it fits, choose the best vehicle method, use the de minimis safe harbor to simplify small purchases, and fund retirement strategically.

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Contact Matthew Tomko at mtomko@tomkocpa.com to learn more or connect with us at the link below.

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The material appearing in this communication is for informational purposes only and should not be construed as advice of any kind, including legal, accounting, tax, or investment advice. This information is not intended to create, and receipt does not constitute, a legal relationship, including, but not limited to, an accountant-client relationship. Although these materials have been prepared by professionals, the user should not substitute these materials for professional services, and should seek advice from an independent advisor before acting on any information presented. Changes in tax laws or other factors could affect the information provided in this communication.

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