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Profits are strong at $200,000. You hired four employees. You bought new equipment. You maxed out your personal retirement contributions. Your accountant just sent an email with the subject line: "Q4 business tax planning—we need to talk."
Then you realize that December 31 is just a week away. Tax season arrives in three months. Your estimated quarterly payments totaled $45,000 this year, but your accountant mentions you'll owe another $15,000 at filing. You face questions like did you maximize Section 179? Did you prepay 2026 expenses? Did you consider a retirement plan for employees? Have you documented your R&D activities?
You suddenly understand that effective small business tax planning is about making strategic decisions before December 31 that can save thousands in taxes. Every dollar of deductions you miss costs you 37 cents in federal tax plus 15.3% self-employment tax, totaling over 50 cents per dollar for high earners.
Year End Tax Planning allows you to accelerate deductions into the current year, defer income to lower future tax years, maximize credits and incentives expiring soon, optimize retirement contributions and business structure (including s corp tax filing strategies), and avoid costly mistakes that trigger audits or missed savings.
So here are top 20 strategies you must implement before December 31, 2025. We explain how each strategy reduces your tax bill with specific examples, what documentation you need to support each deduction or credit, and which opportunities are disappearing or phasing out in 2025.
Why year-end tax planning matters more in 2025
Tax planning delayed until April means missed opportunities. Strategic decisions made before December 31 determine your tax liability for the entire year, and 2025 presents unique considerations that make year-end business tax planning especially critical:
#1 Bonus depreciation continues phasing down
Bonus depreciation drops to 40% for assets placed in service during 2025, down from 60% in 2024 and 80% in 2023. If you plan to purchase equipment, vehicles, or other qualifying property, buying before December 31, 2025 locks in 40% first-year depreciation. Wait until January 2026, and bonus depreciation falls to 20%—cutting your first-year deduction in half.
#2 QBI deduction remains available but uncertain
The Section 199A Qualified Business Income deduction allows pass-through businesses to deduct up to 20% of qualified income through 2025. The OBBBA introduces a new minimum QBI deduction of $400 for taxpayers with at least $1,000 of QBI from active businesses in which they materially participate, starting in 2025. This minimum amount will be adjusted for inflation after 2026.
#3 Retirement contribution limits increased
Enhanced retirement plan limits for 2025 create strategic tax deduction opportunities for business owners. Employers can deduct 401(k) contributions up to $23,000 per eligible employee (plus $7,500 catch-up for age 50+), with ages 60-63 qualifying for higher catch-up amounts. Solo 401(k) plans offer particularly strong benefits: owner-employees can contribute $69,000 ($76,500 with catch-up) combining employee deferrals and employer profit-sharing. SEP IRA contributions max at $69,000, providing flexible year-end tax planning. These employer contributions reduce business taxable income while building employee retention value.
20 year-end tax strategies to implement before December 31
These strategies require action before the calendar year ends. Waiting until you file your return in April eliminates most opportunities.
Strategy 1: Maximize Section 179 expensing
Section 179 allows you to immediately expense up to $1,220,000 in qualifying business property placed in service during 2025. This applies to equipment, machinery, vehicles, computers, furniture, and certain software.
How it works: Instead of depreciating a $50,000 piece of equipment over seven years, deduct the full $50,000 in 2025. This reduces taxable income by the full purchase price immediately.
Requirements: Property must be purchased and placed in service (ready and available for use) by December 31, 2025. Financing counts—you can deduct the full amount even if you finance the purchase.
Action steps: Identify equipment purchases you planned for early 2026 and accelerate them to December 2025. Ensure assets are delivered, installed, and ready for use before year-end. This is a cornerstone strategy in effective business tax planning.
Strategy 2: Claim remaining bonus depreciation
Bonus depreciation applies to new and used qualifying property placed in service during 2025, allowing immediate deduction of 40% of the purchase price. Unlike Section 179, bonus depreciation has no dollar limit and no phase-out based on total asset purchases.
Example: Purchase $500,000 in new manufacturing equipment in December 2025. Claim $200,000 in bonus depreciation (40% × $500,000) plus Section 179 on the remaining balance if desired.
Strategic consideration: Combine Section 179 and bonus depreciation to maximize first-year deductions on large asset purchases—a key component of comprehensive small business tax planning.
Strategy 3: Defer income to 2026
If you expect similar or lower income in 2026, deferring revenue to next year reduces 2025 taxable income. Cash-basis taxpayers have flexibility to time income recognition.
Tactics for deferring income:
- Delay invoicing customers for December work until January
- Postpone year-end bonuses or distributions until January 2026
- Delay closing business sales or asset dispositions until after January 1
- Structure installment sales spreading income over multiple years
Caution: Don't defer income if you expect significantly higher earnings or tax rates in 2026. If the QBI deduction expires or tax rates increase, deferral could cost more than it saves.
Strategy 4: Accelerate deductible expenses
Prepaying business expenses before December 31 accelerates deductions into 2025, reducing current-year taxes. Cash-basis taxpayers can deduct prepaid expenses that provide benefits within 12 months.
Deductible prepayments:
- Prepay 2026 insurance premiums
- Pay January rent in December
- Purchase office supplies and materials for early 2026 use
- Prepay professional fees (legal, accounting, consulting)
- Pay vendor invoices early
- Prepay advertising or marketing campaigns
12-month rule: You can deduct prepayments that don't extend beyond 12 months after the first date the benefit is received. Prepaying two years of expenses doesn't work—only the current year qualifies. This tactic is essential in year-end business tax planning.
Strategy 5: Make additional retirement plan contributions
Contributing to retirement plans reduces taxable income while building long-term savings. Self-employed individuals and business owners have multiple high-contribution options.
Solo 401(k): Contribute up to $69,000 as both employee and employer ($76,500 if age 50+, $80,000+ if age 60-63 with enhanced catch-up which is greater of $10000 or 150% of the regular catch-up..
SEP IRA: Contribute up to 25% of compensation or $69,000, whichever is less. Simpler administration than 401(k) but no catch-up contributions allowed.
Cash Balance Pension Plans: High earners can contribute over $300,000 annually in some cases, creating massive tax deductions for profitable businesses.
Deadline note: While most retirement contributions can be made until the tax filing deadline (April 15 or October 15 with extension), establishing new plans requires action before December 31 for most plan types.
Strategy 6: Establish employee retirement plans
Offering employee retirement plans creates business tax deductions while attracting and retaining talent. Employer contributions to employee retirement accounts are fully deductible.
Simple IRA: Allows employee deferrals up to $16,000 ($19,500 age 50+) with required employer match of 1-3% or 2% non-elective contribution for all eligible employees.
401(k) plans: Offer employee deferrals up to $23,000 ($30,500 age 50+) plus optional employer matching or profit-sharing contributions.
Deadline: Most employee plans must be established by December 31 to take effect for the current tax year. This represents a critical deadline in small business tax planning.
Strategy 7: Maximize health savings account contributions
Health Savings Accounts provide triple tax benefits: contributions are tax-deductible, growth is tax-free, and withdrawals for qualified medical expenses are tax-free. No "use it or lose it" rules apply—balances carry forward indefinitely.
2025 contribution limits:
- Self-only coverage: $4,300
- Family coverage: $8,550
- Age 55+ catch-up: Additional $1,000
Requirements: You must be covered by an HSA-eligible HDHP during 2025. To contribute the full annual amount, you must be HSA-eligible on December 1 or prorate the contribution based on months of eligibility.
Strategy 8: Pay family members for legitimate work
Hiring family members for legitimate business work shifts income to lower tax brackets while creating deductible business expenses. Children, spouses, and other relatives can receive reasonable compensation for actual services performed.
Tax benefits:
- Business deducts compensation as wages
- Family members report income at their typically lower tax rates
- Children under 18 working in parent's sole proprietorship avoid FICA taxes
- Standard deduction ($15,000 for 2025) can shelter significant income
Compliance requirements: Pay must be reasonable for services actually performed. Document job duties, hours worked, and maintain payroll records like any other employee. This is a common tax planning for small business tactics that requires proper documentation.
Strategy 9: Optimize your business structure
Converting from sole proprietorship to S corporation or LLC can provide significant tax savings. S corporations allow owner-employees to split income between W-2 wages (subject to FICA) and distributions (not subject to self-employment tax).
Year-end consideration: S corporation elections via Form 2553 generally must be filed by March 15 for the current year, but late election relief is available in many cases. Evaluate structure changes now to implement for 2026 if too late for 2025. Understanding s corp tax filing deadlines and requirements is crucial for implementing this strategy effectively.
Strategy 10: Document R&D tax credit activities
The Research and Development tax credit applies to businesses developing new products, processes, or software. Many businesses qualify without realizing it—the credit isn't limited to traditional research companies.
Qualifying activities:
- Developing new or improved products
- Creating proprietary software or applications
- Designing manufacturing processes or prototypes
- Testing and experimentation to improve existing products
Documentation needed: Time logs for employees engaged in R&D, detailed project descriptions, documentation of experimentation and testing, and payroll records allocating wages to qualified activities.
Year-end action: Compile documentation before December 31 to support credit claims. The credit can offset income tax and, for businesses with under $5 million in gross receipts, can offset payroll taxes. This advanced business tax planning strategy requires contemporaneous documentation.
Strategy 11: Claim energy efficiency credits
Energy-efficient improvements to commercial buildings and renewable energy installations qualify for substantial tax credits.
Commercial building deduction (179D): Up to $5.00 per square foot for energy-efficient improvements to commercial building systems (HVAC, lighting, building envelope).
Energy investment tax credit: 30% credit for solar, fuel cells, and other renewable energy properties placed in service.
Year-end requirement: Property must be placed in service by December 31, 2025 to claim credits on your 2025 return.
Strategy 12: Review bad debt write-offs
Write off uncollectible accounts receivable before year-end to recognize tax-deductible bad debt losses. For accrual-basis taxpayers, bad debts previously included in income can be deducted when they become worthless.
Documentation needed: Evidence of collection attempts (letters, calls, emails), documentation that debt is uncollectible, and decision to cease collection efforts.
Action step: Review aged accounts receivable, identify uncollectible accounts, and formally write them off before December 31. This routine cleanup is part of sound small business tax planning.
Strategy 13: Conduct inventory adjustments
Writing down obsolete, damaged, or slow-moving inventory to current market value creates tax-deductible losses. Year-end is the ideal time to identify and write down inventory that won't sell at normal prices.
Qualifying write-downs:
- Obsolete products no longer saleable
- Damaged goods with reduced value
- Seasonal items unlikely to sell at full price
- Discontinued product lines
Documentation: Physical inventory counts, valuation analyses, and evidence supporting write-down amounts.
Strategy 14: Make charitable contributions
Business charitable contributions are deductible subject to AGI limitations. For 2025 returns filed in 2026, cash contributions to public charities are limited to 60% of AGI, while contributions to private foundations are capped at 30% of AGI. Year-end giving reduces taxable income while supporting causes you care about.?
Deduction timing: Contributions charged to credit cards in December count for 2025 even if you pay the credit card bill in 2026. Checks mailed by December 31 count even if cashed in January.?
Enhanced deduction strategies: Donating appreciated assets (stock, property) to public charities allows you to deduct fair market value while avoiding capital gains tax on appreciation. These contributions face a 30% of AGI limit. Appreciated property donated to private foundations carries a 20% of AGI limitation. Excess contributions beyond annual limits can be carried forward for up to five years.
Strategy 15: Review estimated tax payments
Ensure you've paid sufficient estimated taxes to avoid underpayment penalties. You must generally pay 90% of current-year tax or 100% of prior-year tax (110% if prior-year AGI exceeded $150,000) to avoid penalties.
Safe harbor strategy: If you've had a high-income year, make a large Q4 estimated payment before January 15, 2026 to reach safe harbor thresholds.
W-2 withholding trick: Increasing W-2 withholding in December is treated as paid evenly throughout the year, potentially avoiding underpayment penalties better than estimated payments. This nuanced approach reflects sophisticated business tax planning.
Strategy 16: Choose optimal accounting methods
Changing accounting methods can shift income timing and reduce current-year taxes. Common changes include switching between cash and accrual basis, adopting or discontinuing LIFO inventory valuation, and changing revenue recognition methods.
LIFO inventory method: In inflationary periods, Last In First Out (LIFO) allows you to expense higher-cost recent inventory purchases first, reducing taxable income.
Deadline: Most accounting method changes require filing Form 3115 (Application for Change in Accounting Method) with your tax return, but analysis should happen before year-end.
Strategy 17: Harvest capital losses
Selling investments with losses before year-end generates capital losses that offset capital gains. Capital losses in excess of gains can offset up to $3,000 of ordinary income annually, with remaining losses carrying forward.
Tax-loss harvesting strategy: Sell losing positions, recognize the loss, and immediately purchase similar (but not identical) securities to maintain market exposure while capturing tax benefits.
Wash sale rule: Don't repurchase the identical security within 30 days or the loss will be disallowed.
Strategy 18: Review employee fringe benefits
Providing tax-advantaged employee benefits creates business deductions while avoiding taxable compensation to employees.
Tax-free fringe benefits:
- Health insurance premiums (deductible to business, tax-free to employees)
- Qualified transportation fringe benefits (parking, transit passes)
- Educational assistance up to $5,250 annually
- Dependent care assistance up to $5,000 annually
- Group-term life insurance up to $50,000 coverage
Year-end implementation: Establishing benefit programs before December 31 may allow deductions for 2025. This is an often-overlooked aspect of comprehensive small business tax planning.
Strategy 19: Document home office deduction
Self-employed individuals working from home can deduct home office expenses. Ensure your home office meets exclusive and regular use requirements and properly calculate deductions before year-end.
Simplified method: $5 per square foot up to 300 square feet (maximum $1,500 deduction).
Actual expense method: Allocate actual home expenses (mortgage interest, property taxes, utilities, insurance, repairs) based on business use percentage.
Documentation: Measure and photograph your home office space, maintain records of all home-related expenses, and document exclusive business use.
Strategy 20: Plan asset sales strategically
Timing asset sales affects which year recognizes gains or losses. If you plan to sell business assets, equipment, or investments, consider whether selling before or after December 31 creates better tax outcomes.
Defer gains: Postpone sales of appreciated assets until 2026 if you expect lower income next year.
Accelerate losses: Sell depreciated assets in 2025 to recognize losses that offset current-year income.
Installment sales: Structure business asset sales as installment sales spreading gain recognition over multiple years. This strategic timing is fundamental to effective business tax planning.
Common year-end planning mistakes to avoid
Even with good intentions, certain mistakes undermine tax planning efforts and create unnecessary costs.
Mistake 1: Waiting until late December
Implementing strategies in the final week of December creates stress and limits options. Vendor shutdowns, shipping delays, and professional unavailability make last-minute planning risky. Start planning in November to ensure sufficient time to execute decisions before year-end deadlines. Effective Year End Tax Planning requires advance preparation.
Mistake 2: Buying assets you don't need
Purchasing equipment solely for tax deductions rarely makes economic sense. A $100,000 equipment purchase saves approximately $35,000 in taxes (assuming 35% tax rate) but costs $65,000 in cash. Only purchase assets that serve legitimate business needs. Tax savings should be a secondary benefit, not the primary motivation.
Mistake 3: Ignoring the placed-in-service requirement
Section 179 and bonus depreciation require assets to be placed in service (delivered, installed, and ready for use) by December 31. Merely ordering or paying for equipment in December doesn't qualify if delivery occurs in January. Plan purchases early enough to ensure delivery and installation before year-end.
Mistake 4: Poor documentation
IRS audits frequently disallow deductions due to inadequate documentation. Maintain contemporaneous records supporting all deductions—receipts, invoices, mileage logs, time records, and written business purpose explanations. Reconstructing documentation years later during an audit is difficult and often unsuccessful. Proper documentation is the foundation of defensible small business tax planning.
Mistake 5: Neglecting state tax implications
Focusing solely on federal tax planning can miss state tax opportunities or create unintended state tax consequences. State rules differ from federal rules on depreciation, deductions, and credits. Analyze both federal and state impacts before implementing strategies. This includes understanding state-specific s corp tax filing requirements if you've elected S corporation status.
How NSKT Global Can Help Optimize Your Year-End Tax Planning
NSKT Global specializes in comprehensive year-end business tax planning for businesses, helping you implement strategies that minimize taxes while maintaining full IRS compliance.
We provide customized small business tax planning analysis including year-end income and expense projections calculating your baseline tax liability, strategy identification and prioritization recommending optimal strategies for your specific situation, multi-scenario tax modeling comparing outcomes of different strategy combinations, cash flow impact analysis ensuring strategies don't create liquidity problems, and federal and state tax integration considering both jurisdictions' rules.
We provide ongoing year-round business tax planning including quarterly tax projections adjusting strategies as circumstances change, estimated tax payment calculations avoiding underpayment penalties, multi-year tax strategy development coordinating current decisions with long-term goals, entity structure optimization evaluating S corp, C corp, and LLC alternatives, and succession and exit planning minimizing taxes on business sales or transfers.
Whether your business generates $100,000 or $10 million in revenue, our expertise ensures you implement every beneficial tax strategy while avoiding costly mistakes that trigger audits or missed savings.
