Navigating the Fall 2025 Extension Filing Season and Preparing for 2026 Tax Changes

The fall 2025 extension filing season presents a complex landscape for CPAs and corporate tax professionals. With significant shifts in tax laws and incentive structures, strategic operational adjustments are essential. This article explores the top consulting inquiries and incentive trends dominating this period, focusing on Section 174 and R&D restructuring, bonus depreciation, the clean energy transition, SALT optimization, and evolving workplace deductions. The goal is to provide clear insights to help maximize cash flow, manage compliance risks, and position clients advantageously for 2026.

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Section 174 and R&D Restructuring

The full restoration of immediate domestic R&D expensing deductions has become a focal point for many businesses. After years of phased changes, the ability to expense research and development costs immediately offers a significant cash flow advantage. However, this benefit comes with ongoing challenges, especially regarding capitalization requirements for foreign-based research activities.

Capitalizing on Immediate Domestic R&D Expensing

The reinstatement of immediate expensing under Section 174 allows companies to deduct R&D expenses in the year incurred rather than capitalizing and amortizing them over several years. This change improves liquidity and reduces taxable income promptly.

Tax professionals should advise clients to:

• Review all domestic R&D expenditures carefully to ensure they qualify for immediate expensing.

• Update accounting systems to track and separate domestic versus foreign R&D costs accurately.

• Coordinate with finance teams to forecast cash flow improvements from accelerated deductions.

  
  

Navigating Capitalization and Compliance Risks for Foreign Research

Foreign-based research remains subject to capitalization and amortization rules. This distinction creates compliance risks if companies fail to segregate costs properly or misclassify expenses.

Key compliance considerations include:

• Maintaining detailed documentation to support the geographic allocation of R&D activities.

• Implementing internal controls to prevent inadvertent misclassification.

• Preparing for increased IRS scrutiny on foreign R&D capitalization.

  
  

By addressing these areas, tax professionals can help clients avoid costly audits and penalties while maximizing the benefits of Section 174.

Bonus Depreciation and Capital Investment

The 100% bonus depreciation allowance for qualified production property continues to be a powerful tool for businesses investing in capital assets. However, the timing of capital expenditures has become more critical as companies seek to maximize asset write-offs within the current tax framework.

Maximizing 100% Bonus Depreciation Allowances

Qualified property placed in service before the end of 2025 generally qualifies for 100% bonus depreciation. This provision allows businesses to deduct the full cost of eligible assets immediately, significantly reducing taxable income.

To leverage this:

• Accelerate capital purchases and place assets in service before the deadline.

• Prioritize investments in qualified production property, including machinery and equipment.

• Coordinate with operations to ensure timely deployment of assets.

  
  

Adjusting Multi-Year Capital Expenditure Timelines

Businesses with planned multi-year capital projects should reassess timelines to capture maximum depreciation benefits. Delaying asset placement beyond 2025 could reduce bonus depreciation percentages, increasing tax liabilities.

Recommendations include:

• Revising project schedules to front-load asset acquisitions.

• Evaluating the tax impact of phased capital investments.

• Collaborating with project managers to align tax and operational goals.

  
  

These steps help maintain cash flow advantages and reduce tax burdens during the transition period.

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The Clean Energy Shift

Federal incentives for clean energy have undergone significant changes, with some residential credits expiring and commercial deductions evolving. Understanding these shifts is vital for advising clients on energy-related tax planning.

Phasing Out Expired 2025 Federal Residential Green Energy Credits

Sections 25C and 25D, which provided federal residential energy credits, expired at the end of 2025. Tax professionals should:

• Inform clients about the expiration and its impact on residential energy projects.

• Review any pending or planned residential installations for eligibility before the deadline.

• Explore alternative incentives or state-level credits that may still apply.

  
  

Structuring Commercial Building Deductions Under Section 179D

Section 179D offers deductions for energy-efficient commercial building improvements. With federal transitions anticipated, clients should:

• Accelerate qualifying energy-efficient upgrades to claim deductions before changes take effect.

• Document energy savings and compliance with efficiency standards meticulously.

• Coordinate with engineers and contractors to ensure projects meet Section 179D requirements.

  
  

This proactive approach helps clients benefit from available incentives while preparing for future regulatory shifts.

SALT Optimization and State-Level Breaks

State and local tax (SALT) credits and deductions remain a critical area for tax planning, especially as states introduce aggressive incentives to attract business investment.

Pivoting Toward Aggressive State-Level Solar, Manufacturing, and Property Tax Credits

Many states have expanded credits for solar energy installations, manufacturing investments, and property tax reductions. Tax professionals should:

• Identify states offering the most advantageous credits aligned with client operations.

• Assist clients in applying for and documenting eligibility for these incentives.

• Monitor legislative developments to anticipate new or modified credits.

  
  

Recalibrating State Filings for Pass-Through Entity Tax Changes

Pass-through entity (PTE) tax structures continue to evolve, with some states shifting from flat-rate taxes to more complex models. Key actions include:

• Reviewing state-specific PTE tax rules and recent changes.

• Adjusting state filings to reflect new tax rates and compliance requirements.

• Advising clients on the impact of these changes on overall tax liabilities.

  
  

By staying current on SALT developments, tax professionals can help clients reduce state tax burdens and improve cash flow.

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Evolving Workplace Deductions

Recent federal changes have introduced new exemptions and incentives related to employee compensation, requiring adjustments in accounting and payroll systems.

Implementing Internal Accounting Systems for New Federal Exemptions

New federal exemptions on tips and overtime pay affect taxable income calculations. Tax professionals should:

• Update payroll and accounting systems to reflect these exemptions accurately.

• Train internal teams on compliance and reporting requirements.

• Monitor IRS guidance for any further clarifications.

  
  

Structuring Compensation Packages Around Non-Taxable Individual Incentives

Employers can enhance employee benefits by incorporating non-taxable incentives. Strategies include:

• Offering qualified fringe benefits that comply with IRS rules.

• Designing compensation packages that balance taxable and non-taxable elements.

• Advising clients on documentation and reporting to avoid compliance issues.

  
  

These measures support workforce satisfaction while managing tax liabilities effectively.

Integrating Tax Credit Management Solutions

Managing the complexity of federal and state tax credits requires robust tools. For example, AndreTaxCo, PLLC offers specialized tax credit management services that help businesses identify, claim, and defend credits efficiently. Their expertise in audit defense and credit optimization aligns with the needs of companies navigating the 2025 extension season and preparing for 2026.

By leveraging such services, tax professionals can:

• Streamline credit identification and documentation.

• Reduce audit risks through expert defense strategies.

• Maximize financial benefits from available incentives.

  
  

For more information, visit AndreTaxCo, PLLC.

The fall 2025 extension filing season demands careful attention to evolving tax rules and incentive structures. By focusing on immediate R&D expensing, bonus depreciation timing, clean energy credits, SALT optimization, and workplace deduction changes, tax professionals can guide clients toward improved cash flow and compliance. Proactive planning and the use of specialized tax credit services will be essential to navigate the complexities ahead and secure financial advantages in 2026 and beyond.