Archives for November 2025

Navigating the Tax Implications of a Merger or Acquisition

Ken Botwinick, CPA | 11/24/2025

Whether you’re selling your business or acquiring another company, the tax structure behind the transaction can significantly influence its success. Understanding how taxes apply to mergers and acquisitions is essential to preserving value, minimizing risk, and ensuring long-term profitability.

Choosing the Right Structure: Asset Sale vs. Stock Sale

From a tax perspective, a merger or acquisition is generally structured as either an asset sale or a stock sale — and the choice makes a major difference in how much tax is paid.

Asset Sale

In an asset sale, the buyer acquires only selected assets of the business. This structure is commonly used when the buyer wants specific divisions, product lines, or intellectual property. It’s also the default method when purchasing a sole proprietorship or a single-member LLC treated as a sole proprietorship for tax purposes.

Stock Sale

If the business is a corporation, partnership, or an LLC taxed as a partnership, a buyer may acquire the seller’s stock or ownership interest directly. The tax outcome depends heavily on whether the business is a C corporation or a pass-through entity such as an S corporation, partnership, or LLC.

How Entity Type Affects Tax Liability

C Corporations

The current flat federal corporate tax rate of 21% makes stock purchases of C corporations more appealing to buyers. Lower corporate taxes mean potentially stronger after-tax earnings and reduced tax on future asset appreciation when sold.

Pass-Through Entities

Businesses structured as S corporations, partnerships, or LLCs generally pass income through to the owner’s individual tax return. Lower individual tax rates and the potential eligibility for the qualified business income (QBI) deduction may provide strong tax advantages to buyers considering these entity types.

In certain transactions, a stock purchase may be treated as an asset purchase using a Section 338 election. Speak with Botwinick & Co. to determine whether this strategy may work for your deal.

Which Party Benefits More? Seller vs. Buyer

Why Sellers Prefer Stock Sales

Typically results in lower overall tax liability.
Transfers most liabilities to the buyer.
May qualify for long-term capital gain treatment.

Why Buyers Prefer Asset Purchases

Helps reduce exposure to unknown or undisclosed liabilities.
Allows for a step-up in basis on acquired assets.
Enables increased depreciation and amortization deductions.
May reduce taxable gain when assets are later converted to cash or sold.

Buyers often prioritize cash flow after closing — especially if acquisition financing is involved. A structure that optimizes deductions and minimizes liability is typically best suited to meeting those financial objectives.

Other Factors to Consider

While tax planning is essential, several additional elements can influence the structure of a merger or acquisition, including:

Employee benefits and compensation plans
Retirement plans and deferred compensation
State and local tax obligations
Intellectual property valuation
Industry-specific compliance requirements

Plan Ahead with Tax Strategy — Not After the Deal Closes

Selling the company you’ve worked hard to build — or stepping into business ownership through acquisition — may be the most important financial decision you’ll ever make. With proper tax planning, you can avoid costly surprises and structure your transaction for maximum benefit.

Botwinick & Co. specializes in tax-smart merger and acquisition strategies for businesses of all sizes. We’ll help you evaluate the tax consequences before negotiations begin to ensure your interests are protected.

Ready to Discuss Your Transaction?

Let our experienced tax advisors guide you through the process. Contact Botwinick & Co. today to get started.

How the New QPP Tax Deduction Can Benefit Manufacturers

Ken Botwinick, CPA | 11/18/2025

Manufacturers and production-based businesses may soon benefit from a powerful new tax deduction thanks to the upcoming provisions of the One Big Beautiful Bill Act (OBBBA). This legislation introduces a unique opportunity—allowing **100% first-year depreciation** for nonresidential buildings that qualify as Qualified Production Property (QPP). This is a significant shift from traditional depreciation methods, where buildings must typically be depreciated over 39 years.

Unlike the standard bonus depreciation available for tangible property with a recovery period of 20 years or less, or qualified improvement property with a 15-year recovery period, QPP applies specifically to nonresidential real estate used in production-based activities. If used correctly, this deduction could provide major tax savings for eligible businesses.

What Is Qualified Production Property (QPP)?

The IRS definition of QPP can be complex, but it can be summarized as follows:

QPP refers to the portion of a nonresidential building that is used by a taxpayer as an integral part of a qualified production activity.
A qualified production activity includes manufacturing, producing, or refining a qualified product.
A qualified product is any tangible personal property—excluding food or beverages prepared and sold in the same building (meaning restaurants do not qualify).
The activity must result in a substantial transformation of the property being produced.

In simpler terms, QPP generally refers to buildings such as factories and production facilities. However, only the areas directly related to eligible production activities qualify; additional limitations apply.

Eligibility & Placed-in-Service Rules

To qualify for the 100% first-year deduction, QPP must meet specific construction and placed-in-service requirements:

Construction must begin after January 19, 2025, and before 2029.
The property must be placed in service in the U.S. or a U.S. possession before 2031.
The original use of the property must generally begin with the taxpayer.

Exception for Previously Owned Property

A previously used nonresidential building may still qualify if it meets all of the following conditions:

Acquired after January 19, 2025, and before 2029.
Not used in a qualified production activity between January 1, 2021, and May 12, 2025.
Never previously used by the taxpayer.
Now used as an integral part of a qualified production activity.
Placed in service in the U.S. or a U.S. possession before 2031.

Additionally, if an Act of God (as defined by the IRS) prevents timely completion, the IRS may extend the deadline for placing the property in service.

Important Pitfalls to Watch Out For

While the QPP deduction can be highly valuable, there are several limitations that taxpayers should keep in mind:

1. Leased Property

If you own a building and lease it to another party—even if the tenant uses it for a qualifying production activity—you generally cannot treat it as QPP.

2. Nonqualified Areas of a Building

The deduction only applies to the areas used directly for eligible production activities. The following spaces are not considered QPP:

Offices or administrative areas
Sales departments
Lodging or parking areas
Research or engineering spaces
Software development zones
Any activity not tied to transforming tangible personal property

3. Ordinary Income Recapture

If the property stops being used for a qualified production activity within 10 years of being placed in service, an ordinary income depreciation recapture rule will apply—potentially resulting in unexpected tax liability.

What to Expect Next

Further clarification from the IRS is anticipated regarding implementation, allocation of costs within buildings, and qualification standards. Once the deduction is elected, it typically cannot be revoked without IRS approval, so strategic planning is essential.

Manufacturers, production companies, and industrial businesses should start reviewing their facilities and future expansion plans now to assess QPP eligibility.

Need Guidance? Botwinick Can Help

Determining QPP eligibility requires careful analysis of building usage and cost allocation. Our team at Botwinick & Co. specializes in helping businesses maximize tax benefits while staying fully compliant with evolving regulations.

Contact us today to review your facility and develop a strategy that aligns with the new QPP deduction and other available tax-saving opportunities.

Maximizing Tax Deductions on Business Gifts: What Every Business Owner Should Know

Ken Botwinick, CPA | 11/11/2025

Thoughtful business gifts can strengthen relationships with clients, employees, and partners — and in some cases, offer tax advantages. However, the IRS has strict rules governing how much you can deduct, making it essential to plan ahead and keep detailed records. Here’s what you need to know about deducting business gifts under current tax laws.

Understanding the $25 Business Gift Deduction Limit

The IRS generally limits business gift deductions to $25 per person, per year, a cap that’s been unchanged since 1962. While that amount may seem low today, there are several ways to maximize your deductions and ensure compliance.

When You Can Deduct More Than $25

Fortunately, there are exceptions to the $25-per-person rule that can help you write off more of your business gift expenses:

Gifts to businesses, not individuals:
The $25 cap applies only to gifts made directly or indirectly to a specific individual. If you send a gift to a company — such as office equipment or an industry publication — and it benefits the business as a whole, it’s generally fully deductible. However, if the gift primarily benefits a specific employee, the $25 limit still applies.
Gifts to married couples:
If both spouses have a business relationship with you and the gift is meant for both, you can usually deduct up to $50.
Incidental costs don’t count toward the limit:
Expenses for personalization, packaging, shipping, or insurance are fully deductible and don’t reduce your $25 limit.
Employee gifts:
Cash and gift cards are considered taxable compensation and deductible as wages. Noncash, low-cost gifts — such as company-branded items, occasional meals, or holiday gifts — may qualify as de minimis fringe benefits, which are tax-free to employees and deductible for your business.

Entertainment Gifts Under Current Tax Law

The Tax Cuts and Jobs Act (TCJA) eliminated most entertainment expense deductions, including tickets to concerts, sporting events, and similar activities, even if they’re business-related.

However, if you gift tickets to a client and don’t attend the event yourself, you can treat the cost as a business gift deduction, subject to the $25 limit and applicable exceptions.

Additionally, meals provided during entertainment events may still qualify for a 50% deduction if the cost is clearly stated separately on the invoice.

Why Recordkeeping Is Key to Compliance

Good recordkeeping can make the difference between a valid deduction and an IRS adjustment. Be sure to document:

A description of the gift
The cost and date of purchase
The business purpose and relationship of the recipient

Digital records — such as CRM notes, expense reports, or accounting entries — are perfectly acceptable, provided they clearly support your claim. It’s also smart to track gift expenses separately in your books for easy identification during tax preparation.

Make Every Gift Count — Tax-Smart and Appreciated

Business gifts can go a long way in showing appreciation to clients and employees — but understanding the IRS rules helps you avoid costly mistakes and maximize deductions.

If you’re unsure how these rules apply to your business or want to develop a tax-efficient gift-giving strategy, the professionals at Botwinick & Company can help.

Contact us today to review your company’s gift-giving policies and ensure your deductions are handled properly — so you can express appreciation while staying compliant with IRS regulations.

Smart Year-End Tax Planning Strategies for Accrual-Basis Businesses

Ken Botwinick, CPA | 11/05/2025

As the year draws to a close, strategic tax planning becomes essential for every business owner. For accrual-basis taxpayers, projecting income and expenses for the current and upcoming year allows you to make informed decisions about when to recognize income and claim deductions. While cash-basis taxpayers have more flexibility in timing payments, accrual-basis businesses can still take advantage of several tax-saving opportunities before December 31.

Review and Record Incurred Expenses

One of the most effective year-end strategies for accrual-basis businesses is ensuring that all expenses incurred in 2025 are properly recorded — even if they won’t be paid until 2026. Doing so allows these expenses to be deducted on your 2025 federal tax return, reducing your taxable income for the year.

Common deductible incurred expenses include:

Employee wages, commissions, and bonuses
Payroll taxes
Advertising and marketing costs
Interest on business loans
Utilities and insurance premiums
Property and real estate taxes

You can also accelerate certain deductions by charging qualified expenses to a business credit card before year-end. This strategy applies to both accrual- and cash-basis taxpayers, allowing you to claim the deduction in the current year while paying later.

Evaluate and Adjust Prepaid Expenses

Take time to review your prepaid expense accounts and ensure that items already used during the year are written off.

If you’ve prepaid for insurance coverage that spans from 2025 into 2026, you may be eligible to deduct the full premium amount this year, provided you make a proper tax method election. This can help front-load deductions and reduce your current tax liability.

Strengthen Your Tax Position with Additional Steps

A few additional steps can make a significant difference in your year-end tax results:

Review Accounts Receivable: Write off any outstanding invoices that are unlikely to be collected. Documenting uncollectible receivables helps ensure your books and taxable income accurately reflect your financial position.
Pay Interest on Shareholder Loans: Ensure any shareholder loans are properly documented and that applicable interest payments are made before year-end. This helps maintain compliance and avoid IRS scrutiny.

Partner with Tax Professionals Who Understand Your Business

Year-end tax planning requires foresight, organization, and a deep understanding of current tax laws. The CPAs at Botwinick & Company can help you project your income, optimize deductions, and ensure your financial statements are accurate and compliant — setting your business up for success in 2026.

Contact Botwinick & Co. today to schedule a year-end tax planning consultation and discover how proactive strategies can help reduce your business tax burden.