Running a business demands constant attention to operations, customers, and growth. But as December approaches, there’s another critical area that deserves your focus: tax planning. The decisions you make in the final weeks of the year can significantly impact your tax liability and set the stage for a financially stronger year ahead.
Unlike individual taxpayers who have limited options for reducing their tax burden, business owners have access to a broader range of strategies. From retirement plan contributions to equipment purchases and entity structure decisions, the opportunities are substantial. Here’s what you need to know to make the most of your tax strategy.
Accelerate Deductions and Defer Income
One of the most straightforward tax reduction strategies involves timing. If your business uses cash-basis accounting, you have significant flexibility when you recognize income and expenses. Consider prepaying certain business expenses before December 31—insurance premiums, rent, subscriptions, and supplies are all candidates. These payments become deductible in the current year even though the benefit extends into the next.
On the income side, if you have outstanding invoices, you might delay sending them until early January, pushing that revenue into the following tax year. Of course, this strategy works best when you expect to be in a similar or lower tax bracket next year. If tax rates are likely to increase or your income will be significantly higher, the opposite approach—accelerating income and deferring deductions—may make more sense.
Maximize Retirement Plan Contributions
Retirement accounts remain one of the most powerful tax-advantaged tools available to business owners. If you haven’t maxed out contributions to your SEP-IRA, SIMPLE IRA, Solo 401(k), or company-sponsored plan, now is the time to act. For 2025, contribution limits are generous: up to $69,000 for a SEP-IRA or Solo 401(k), plus an additional $7,500 catch-up contribution if you’re 50 or older.
Beyond the immediate deduction, retirement contributions grow tax-deferred until withdrawal, compounding the long-term benefit. If you employ workers, offering or enhancing a retirement plan can also serve as a valuable recruitment and retention tool. Review your current contributions and consider whether increasing them makes sense for both your tax situation and your long-term financial goals.
Take Advantage of Section 179 and Bonus Depreciation
If your business needs new equipment, vehicles, or technology, purchasing before year-end can generate substantial tax savings. Section 179 of the tax code allows you to deduct the full purchase price of qualifying equipment and software in the year it’s placed in service, rather than depreciating it over several years. For 2025, the Section 179 deduction limit is $1,160,000, with a phase-out beginning at $2,890,000 in total equipment purchases.
Bonus depreciation provides an additional avenue for immediate expensing. While the 100% bonus depreciation that was available in previous years has begun phasing down, a significant percentage remains available for qualified property. If you’ve been considering upgrades to machinery, computers, office furniture, or company vehicles, completing those purchases before December 31 could provide meaningful tax relief.
Review Your Business Entity Structure
The structure of your business—whether you operate as a sole proprietorship, LLC, S corporation, or C corporation—has significant tax implications. While changing your entity type mid-year isn’t always practical, year-end is an excellent time to evaluate whether your current structure still serves you well. S corporation owners, for example, should review whether their salary-to-distribution ratio remains reasonable and defensible. Taking too little in salary to avoid payroll taxes can trigger IRS scrutiny.
If you’re operating as a sole proprietor or single-member LLC and your income has grown substantially, electing S corporation status for the following year could reduce your self-employment tax burden. These decisions require careful analysis with a qualified tax professional, but year-end planning conversations are the ideal time to explore your options.
Don’t Overlook State and Local Tax Considerations
Federal taxes often dominate the conversation, but state and local taxes can represent a significant portion of your overall burden. Many states offer pass-through entity taxes that allow business owners to work around the $10,000 federal cap on state and local tax deductions for individuals. If your state offers this election and you haven’t taken advantage of it, speak with your tax advisor about whether it makes sense for your situation.
Additionally, recent legislative changes have affected various credits and deductions. For a comprehensive overview of year-end tax planning moves—including updates on SALT cap increases and new deductions for overtime pay, tips, and car loan interest—consult a year-end tax planning guide that covers strategies applicable to both individuals and business owners.
Plan Charitable Giving Strategically
Charitable contributions can reduce your tax liability while supporting causes you care about. For business owners, this might include donating appreciated stock (avoiding capital gains while deducting the full market value), contributing inventory to qualified organizations, or making cash donations through your business. If you’re charitably inclined but your itemized deductions won’t exceed the standard deduction this year, consider bunching multiple years of giving into a single tax year or using a donor-advised fund to capture the deduction now while distributing funds to charities over time.
Harvest Investment Losses in Business Accounts
If your business holds investment accounts, year-end is an opportune time to review the portfolio for tax-loss harvesting opportunities. Selling investments that have declined in value allows you to offset capital gains realized elsewhere. Losses exceeding your gains can offset up to $3,000 of ordinary income annually, with additional losses carried forward to future years. Just be mindful of wash sale rules, which disallow the loss if you repurchase a substantially identical investment within 30 days.
Take Action Now
While the options outlined here provide a starting point, every business situation is unique. The most effective approach combines general best practices with strategies tailored to your specific circumstances, industry, and goals.
Schedule a conversation with your tax advisor now—before their calendar fills up with year-end appointments. Come prepared with questions about which strategies apply to your situation, what documentation you’ll need, and how this year’s decisions will affect your tax position going forward. Thoughtful planning today translates to fewer surprises and greater peace of mind when tax season arrives.