Tax Manager

Navigating 2026 Tax Strategies for Five Key Oregon Industries Fall is here: temperatures are slowly dropping, the leaves are changing color, and the fresh-hop selections are at their peak. The instinct to get cozy is at an all-time high, but that doesn’t mean you should be complacent with your year-end tax planning. If you haven’t thought about what you can do before year-end to prepare for the 2026 tax filing season, here are some tax strategies to consider while enjoying these sunny, crisp fall days. Bonus depreciation is back! Assets placed in-service after January 19, 2025, can be fully depreciated in the year of acquisition for tax purposes. Review your placed in-service dates to ensure proper tax treatment, and consider the binding contract rules Have you reviewed your tax accounting method recently? Cash, Accrual, Percentage of Completion and Completed Contract are your most common options, each having their own advantages and disadvantages depending on the size of your company and the length of jobs on your WIP schedule. Due to recent law changes, or if there’s been a change in your business activity, it may be valuable to spend time analyzing a potential change. Opportunity Zones (OZ) are getting a makeover, and the chance to defer capital gains using this investment vehicle has been made permanent. Oregon currently has several designated opportunity area tracts related to the first OZ program established by the Tax Cuts and Jobs Act of 2017. The new program will designate new zones, with special incentives for rural areas. This is a great opportunity for builders in Oregon, with new areas needing to be identified by the governor by July 1, 2026. Manufacturing and Beverage Industries Gone are the days of capitalizing R&D costs. For taxable years beginning after December 31, 2024, taxpayers will be able to immediately deduct domestic research or experimental expenditures paid or incurred during the taxable year. Taxpayers who previously capitalized and amortized domestic R&D costs under the prior law are given transition relief: they may elect to deduct any remaining unamortized domestic R&D expenditures in the first taxable year beginning after December 31, 2024, or alternatively, deduct such remaining unamortized amounts ratably over the two taxable years beginning after that date. This election is available to all taxpayers, but the bill provides a special retroactive option for certain small businesses with gross receipts of less than $31 million, allowing them to apply the new expensing rules retroactively to taxable years beginning after December 31, 2021, by filing amended returns within one year of enactment. This retroactive relief is not available to large taxpayers, who must apply the new rules prospectively. Considering constructing a new manufacturing facility? For qualified production property where construction begins after January 19, 2025, and before January 1, 2029, there’s a new election available to immediately expense new or original use property. Currently, Oregon conforms to federal depreciation rules, so the deduction would apply at the federal and state level. Consider a cost segregation study from a reputable service provider to ensure proper classification of construction costs for purposes of this election. Do you have a large amount of interest expense on your books? The limitation on the deductibility of business interest expense is governed by IRC Section 163(j). Generally, the deduction for business interest is limited to the sum of business interest income and 30% of adjusted taxable income, with certain exceptions for small businesses and electing real property trades or businesses. The limitation on deducting business interest expense is now permanently based on EBITDA (earnings before interest, taxes, depreciation, and amortization), allowing larger deductions for many businesses. Medical and Dental Industries The 20% Qualified Business Income (QBI) deduction for pass-through business owners has been extended permanently, with a higher phase-in threshold ($75,000 for single filers, $150,000 for joint filers, indexed for inflation) beginning in 2026. There is also a new minimum deduction of $400 for active business owners with at least $1,000 in QBI, starting in 2026. It’s worth noting that income from a Specified Service Trade or Business (SSTB) is generally excluded from the QBI deduction if the taxpayer’s taxable income exceeds the applicable threshold amount, but these thresholds have been increased (Married Filing Jointly: Threshold $394,600; Phase-in Range $394,600 to $494,600 for 2025). With these adjusted thresholds, medical and dental businesses should consider the potential impact of the QBI deduction on their personal tax returns. Other Considerations Great news for Oregon residents: Beginning with tax year 2025, the state and local tax (SALT) deduction cap increases from $10,000 to $40,000 for single filers and married couples filing jointly ($20,000 for married filing separately). This higher cap applies for 2025 and is indexed for inflation in subsequent years, rising to $40,400 in 2026 and increasing by 1% annually through 2029. For high-income taxpayers, the allowable SALT deduction is phased out: the cap is reduced by 30% of the amount by which a taxpayer’s modified adjusted gross income (MAGI) exceeds $500,000 ($250,000 for married filing separately), but the deduction cannot be reduced below $10,000.For business owners, you should consider planning scenarios for pass-through entity elections and this increased deduction amount at the individual level. Here at Kernutt Stokes, we strive to be a trusted business advisor for you and your family. If you have questions about your taxes, don’t hesitate to contact us ; we’re here to help. #J-18808-Ljbffr