New York Changes How Businesses Count Their Depreciation and R&D Costs

The New York State Department of Taxation and Finance has issued new rules that change how companies calculate their taxable income for the 2025 tax year. Key points include:

• Departure from Federal Accelerated Depreciation
  New York no longer follows federal rules that allow businesses to take faster depreciation on certain equipment. The state now requires its own set of adjustments, meaning companies can no longer claim the larger deductions previously available for production property.

• Revised Treatment of Research & Experimental (R&E) Expenses
  The new guidelines alter how R&E costs are handled, potentially increasing the taxable income for businesses that heavily invest in research and development.

• Impact on All Business Entities
  The adjustments apply to individuals with small businesses, partnerships, corporations (including those issuing stock), and shareholders in S corporations. The notice provides step‑by‑step guidance for each taxpayer type.

• Potential Tax Implications
  Because of the shift away from accelerated depreciation and changes to R&E treatment, many companies may face higher taxable income in New York. This could result in increased state tax liability and a greater risk of penalties or audits if the new rules are not followed correctly.

• Recommended Actions
  • Review the notice thoroughly.
  • Update accounting systems to reflect the required additions and subtractions.
  • Consult a tax professional familiar with both federal and state regulations to ensure compliance.

In summary, New York is tightening its tax rules for 2025 by moving away from certain federal provisions. Companies accustomed to accelerated depreciation and special R&E treatment must adapt their filing practices, potentially facing higher taxable income in the state.