Why Mid-Year Tax Planning Matters in 2025

As we move into the third quarter, business owners are faced with one of the most valuable yet often overlooked opportunities in tax strategy: mid-year projections. With six months of actual financial data already recorded, Q3 becomes the ideal time to forecast year-end results and make proactive moves before December 31.

This year, planning takes on an even greater dimension with the recently passed One Big Beautiful Bill Act (OBBBA, P.L. 119-21), signed into law on July 4, 2025. The legislation introduces significant tax changes—some permanent, some with effective-date wrinkles—that directly affect decisions around equipment purchases, depreciation, and overall year-end planning.

In this post, we’ll cover:

• Why mid-year tax projections are essential

• How equipment purchase timing (Q3 vs. Q4) can impact deductions and cash flow

• What the OBBBA changes mean for your business in 2025 and beyond

• State conformity issues you can’t ignore

• Practical next steps for business owners this quarter

Section 1: The Case for a Mid-Year Tax Projection

A tax projection is essentially a forecast of what your taxable income and tax liability will look like at year-end, based on your year-to-date results and expected activity for the rest of the year.

Benefits include:

• Identifying unexpected tax liabilities early, while there’s still time to plan.

• Making informed decisions about equipment purchases, retirement contributions, or bonuses.

• Managing cash flow by knowing whether you’ll owe or receive a refund.

• Avoiding underpayment penalties by adjusting estimated tax payments.

Without this projection, you’re essentially flying blind until filing season. By Q3, you have enough financial history to make projections meaningful, yet still enough runway to take action.

Section 2: Equipment Timing – Q3 vs. Q4

For many businesses—particularly in construction, manufacturing, transportation, and agriculture—equipment purchases represent one of the most significant tax planning levers.

The question: when to place new assets into service—Q3 or Q4?

Q3 placement advantages:

• Immediate eligibility for Section 179 and (if you qualify) 100% bonus depreciation, lowering taxable income sooner—which can also reduce your September 15 estimated payment when using annualized methods.

• Provides more certainty for year-end planning.

Q4 placement considerations:

• Preserves liquidity longer; you don’t tie up cash until later in the year.

• Still eligible for the same federal deductions if you meet the acquisition/placed-in-service rules, but the cash-flow benefit arrives later.

• May better align with production schedules or vendor availability.

Two critical timing guardrails under OBBBA (don’t skip these):

1. Binding-contract (acquisition) rule. To get the new 100% bonus rate, property generally must be acquired after Jan. 19, 2025—and “acquired” is usually pegged to when you entered into a binding written contract. If you signed a binding contract before Jan. 20, 2025, you may not qualify for the 100% rate even if placed in service later.

2. Transitional election. For the first tax year ending after Jan. 19, 2025, taxpayers may elect to apply the old phase-down percentage instead of 100% (generally 40% for 2025; 60% for certain long-production property/aircraft). This can matter if you prefer to spread deductions.

Example:
A construction firm anticipates $750,000 of taxable income for 2025. Purchasing and placing $500,000 of equipment in service during Q3 could bring down taxable income substantially (and potentially reduce September estimates). Deferring to Q4 still provides the deduction (subject to the acquisition rule above), but doesn’t alleviate Q3 tax burdens.

Section 3: How the One Big Beautiful Bill Changes the Equation

100% Bonus Depreciation Restored (Permanent). OBBBA restores 100% bonus depreciation for qualifying property acquired after Jan. 19, 2025 and placed in service thereafter, making full expensing permanent on a go-forward basis (subject to the binding-contract rule above).

Section 179 Expanded. For tax years beginning after Dec. 31, 2024, the Section 179 expensing limit is $2.5 million with a $4.0 million phase-out threshold, with indexing for inflation going forward. Spell this timing out for fiscal-year filers in particular.

Domestic R&D Expensing Permanence (new IRC §174A). The Act creates IRC §174A, allowing businesses to expense domestic research and experimental (R&E) costs in the year incurred for tax years beginning after Dec. 31, 2024. It also provides transition rules for unamortized 2022–2024 domestic R&E. Foreign R&D remains subject to more restrictive (amortization) rules.

20% Pass-Through (QBI) Deduction Permanence + Minimum. The §199A QBI deduction is made permanent and a minimum $400 deduction is introduced (the floor begins in 2026 and is indexed for inflation beginning in 2027 per technical summaries).

Why this matters for equipment timing:
Before OBBBA, bonus depreciation was scheduled to phase out (80% in 2023, 60% in 2024, 40% in 2025). With the law change, businesses can again plan capital expenditures with confidence around 100% bonus—but only if they satisfy the post-Jan. 19, 2025 acquisition and placed-in-service rules.

Section 4: The State Conformity Puzzle

While OBBBA is federal law, states are not required to conform. Many states already decouple from federal bonus depreciation and/or cap Section 179 far below federal limits.

California example (still the poster child for decoupling):

• Bonus depreciation: California requires an add-back—no federal bonus allowed for CA purposes.

• Section 179: Capped at $25,000 with a $200,000 investment threshold (corporate forms/schedules reinforce these limits).

Takeaway: Always check state rules before finalizing equipment-timing decisions. What makes sense federally may not deliver the same benefit at the state level. (Practitioners’ SALT updates and conformity charts continue to flag wide variation.)

Section 5: Industry-Specific Considerations

• Construction: Heavy equipment purchases may swing taxable income significantly; cash-flow management is often the deciding factor.

• Manufacturing & Tech: Combining equipment expensing with domestic R&D expensing under §174A can create powerful, immediate deductions.

• Real Estate & Agriculture: Larger assets (tractors, machinery, vehicles) often trigger state add-backs—project both federal and state impact.

Section 6: Practical Next Steps for Business Owners

1. Run a mid-year projection. Model YTD actuals + forecast to year-end; consider multiple scenarios (e.g., with/without Q3 purchases).

2. Evaluate cash flow. Big deductions are great—operating liquidity is greater.

3. Review equipment plans. If purchases are already on the table, decide now whether Q3 or Q4 service dates best align with both tax and cash-flow goals, and confirm the acquisition date to preserve 100% bonus.

4. Check state conformity. Don’t assume federal benefits will automatically apply at the state level (especially in California).

5. Document placed-in-service. Keep invoices, delivery docs, and in-service evidence to substantiate deductions.

Conclusion: Planning with Certainty

The passage of OBBBA provides much clearer rules for business tax planning in 2025. With 100% bonus depreciation restored (subject to post-Jan. 19, 2025 acquisition), expanded Section 179 limits for tax years beginning after 12/31/2024, domestic R&D expensing under §174A, and permanent QBI, business owners can plan with renewed confidence—while minding state conformity and the binding-contract rule.

Sincerely,
W. E. Stevens, PC

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