5 Year-End Tax Strategies for Small Business Owners
As the holiday season approaches, taxes are likely the last thing on a small business owner’s mind. However, waiting until April is often too late to make a meaningful impact. Below are 5 tax strategies every small business owner should review before the New Year.
Get an Estimate of your 2025 Tax Bill
True tax planning starts with knowing where you are. If you want to be proactive on your tax bill next April, the best way is to get a proper baseline tax estimate calculated by your CPA before year’s end.
Once you have your baseline, you will know if and how well the rest of these strategies will work. Step one to getting your 2025 baseline tax estimate is obtaining reliable financial statements. After all, a tax estimate is useless if your bookkeeping and bank reconciliations are not up to date.
You have been doing your bookkeeping and bank reconciliations, right?
Consider Necessary Equipment Purchases
If you need to purchase new equipment for your business and were planning to do so in early 2026, consider purchasing it now and placing it in service before the year’s end.
I say placing it in service because that is what determines the tax deduction timing. Equipment ordered on December 31st, but received on January 1st, will not qualify as a 2025 tax deduction. You never want to purchase equipment solely for tax deduction, as the tax savings are always just pennies on every dollar spent, but if it’s time to get new equipment, consider accelerating that deduction into 2025.
Consider Changing Your Tax Entity Status
Are you still operating an LLC that gets included in your 1040 filing? Consider how electing to S-Corporation status might save you on payroll taxes.
When you're self-employed and treat your business and you as one in the same for tax purposes, all of your taxable business income is subject to the 15.3% FICA (Social Security & Medicare) rate. Under S-Corporation status, only the portion you pay yourself as a W-2 employee is subject to this tax (you have to pay yourself a reasonable salary). The rest of your business income is only subject to ordinary income tax rates.
Take Advantage of Prepaid Expenses
If you are on the cash-basis of accounting (if you have no idea what I am talking about here, you likely are), consider prepaying your expenses.
Most of your annual subscriptions can be deducted in 2025 as long as you actually pay the cash before 2026. Consider your annual liability insurance premiums, 12-month software subscriptions, and professional fees. If any of these were coming due in early 2026, consider prepaying these expenses to take the tax benefit now rather than in April 2027. Don’t get too creative, though, as things like rent, interest, refundable security deposits, and subscriptions longer than 12 months are a no-go for this strategy.
Delay Sending Invoices
If you can afford to, and are on the cash-basis of accounting. Consider holding off on some late-year-end invoices.
If you wait to get paid until January, that income will be taxable in 2026. However, that cash-basis method of accounting is key. Also consider your tax brackets. If your business is projecting a great 2026 and you expect to be in a higher tax bracket, it may make more sense to get paid in 2025 and pay on that income at a lower tax rate.
If you want professional guidance on how to implement these tax strategies before year’s end. Reach out, our team is here to help.
PJ Donohue, CPA