Year-End Tax Planning for Small Businesses

What it is: Delay invoicing or receiving payments until January 2026 to reduce 2025 taxable income.

Details: This is effective if you expect to be in a lower tax bracket next year.

Requirements: Ensure clients agree to delayed payments and maintain records.

Example: Delaying a $10,000 invoice to January 2026 lowers your 2025 tax bill.

Why it matters: Timing income can optimize your tax situation.

What it is: Pay business expenses before year-end to claim deductions in 2025.

Details: Includes supplies, advertising, insurance premiums, and professional fees.

Requirements: Expenses must be paid by December 31, 2025, and be business-related.

Example: Paying $5,000 for next year’s insurance premium in December 2025 is deductible now.

Why it matters: This lowers your current tax bill.

What it is: Max out contributions to retirement plans like 401(k), SEP-IRA, or Solo 401(k).

Details: For 2025, catch-up contributions for those aged 60-63 are $11,250. Contributions must be made by the tax filing deadline, including extensions.

Requirements: Plans must be established by year-end for certain deductions.

Example: Contributing $20,000 to a SEP-IRA reduces taxable income by $20,000.

Why it matters: This saves taxes and builds retirement savings.

What it is: Buy equipment or assets before year-end to claim depreciation or Section 179 deductions.

Details: Section 179 allows an immediate deduction of up to $1,220,000 (2024 limit, adjusted for 2025), with a phase-out if purchases exceed $3,050,000.

Requirements: Assets must be placed in service by December 31, 2025.

Example: Buying a $50,000 machine in December 2025 could yield a full deduction.

Why it matters: This accelerates tax savings on capital investments.

What it is: Evaluate whether changing your business structure (e.g., sole proprietorship to S corp) offers tax benefits.

Details: S corps may reduce self-employment taxes, while LLCs offer flexibility and liability protection.

Requirements: Consult a tax professional to assess tax and legal implications.

Example: Switching to an S corp could save thousands in self-employment taxes.

Why it matters: The right structure optimizes taxes and protects assets.

What it is: Pay family members for legitimate work to deduct wages.

Details: Wages are deductible, and family members may be in lower tax brackets, reducing overall tax liability.

Requirements: Work must be reasonable and documented, with proper payroll records.

Example: Paying a child $12,000 for administrative work is deductible and may be tax-free for them.

Why it matters: This shifts income to lower tax brackets and funds family goals.

What it is: Structure loans from your business to yourself as tax-free.

Details: Requires clear terms, a true debtor-creditor relationship, and repayment expectations.

Requirements: Document the loan agreement to avoid IRS reclassification as income.

Example: Borrowing $20,000 from your business with a repayment plan is tax-free.

Why it matters: This provides liquidity without tax consequences.

What it is: Carry forward net operating losses to offset future taxable income.

Details: No limit on losses for sole proprietors and LLCs, and losses can be carried forward indefinitely.

Requirements: File accurate returns and track losses.

Example: A $25,000 loss in 2025 can offset income in 2026.

Why it matters: This provides relief in profitable years.

What it is: Maintain detailed records of all business expenses to support deductions.

Details: Includes receipts, invoices, mileage logs, and bank statements.

Requirements: Records must be organized and accessible for IRS audits.

Example: A well-kept mileage log supports a $3,500 vehicle deduction.

Why it matters: Proper documentation is your defense against IRS challenges.

What it is: Work with a tax advisor to maximize deductions and ensure compliance.

Details: Professionals can identify credits, navigate complex rules, and plan for potential 2025 tax law changes.

Requirements: Choose a qualified CPA or Enrolled Agent.

Example: A tax professional might uncover $10,000 in additional deductions.

Why it matters: Expert advice prevents costly mistakes and optimizes savings.