As year-end approaches, now is the ideal time for business owners to take a proactive look at their tax picture and consider strategies that can reduce their taxes, help cash flow and position the company for success in the coming years. Review our top tax planning tips for small businesses that should be considered before December 31.
Maximize cash-basis deductions.
For cash-basis businesses, deductions can be claimed based on when the expense is paid, not what period the expense relates to. For example, if you pay January 2026 rent in December 2025 the deduction is claimed in 2025, even if the rent cost is associated with the next calendar year. You can accelerate cash-basis deductions to prepaying expenses before the end of the year, stock up on supplies needed for the following period, pay for future travel, pay employee bonuses at year-end and many others.
IRS regulations contain a safe-harbor rule that allows cash-basis taxpayers to prepay and deduct qualifying expenses up to 12 months in advance without challenge, adjustment, or change by the IRS. Qualifying expenses include lease payments on business vehicles, rent payments on offices and machinery, and business and malpractice insurance premiums.
Defer cash-basis income.
For cash-basis businesses, income is recognized when it is actually or constructively received, regardless of when the work was performed or the invoice was issued. This includes receipt of cash payments, checks, credit card payments, ACH/wires, deposits/retainers, etc. Receiving a client’s payment via check is included in income even if it has not been deposited into your bank account.
The tax planning opportunity to minimize the recognition of taxable income includes delaying invoicing, pause collection efforts or encourage clients to pay after the close of the year for open invoices.
Take full advantage of depreciation (Section 179 & bonus).
Large asset purchases such as machinery, equipment, furniture, servers, etc. are required to be capitalized and depreciated. When an asset is capitalized, it cannot be expensed in full in the year of purchase. Instead, it is subject to depreciation based on the useful life of the asset according to the IRS.
In 2025, the OBBBA made permanent the 100% bonus depreciation for qualifying purchases that provides for an immediate 100% bonus depreciation deduction in the year of purchase. Qualifying assets include tangible personal property (such as machinery, equipment, furniture, computers, servers, tools, appliances, etc.), certain vehicles (limits apply), qualified improvement property (interior, non-structural improvements to nonresidential buildings) and other MACR assets with a recovery period of 20 years or less. There is no cap for the bonus depreciation deduction that can be claimed annually.
Section 179 expensing was also expanded under the OBBBA which allows for an immediate expensing of qualifying assets for small businesses. The maximum section 179 deduction is $2.5 million with a phase-out of $4 million of total purchases. Qualifying assets include tangible personal property and certain vehicles (limits apply).
Maximize retirement contributions.
As a small business owner, establishing a retirement plan for your company can be beneficial for both your own personal wealth creation and for the retention of your employees. There are several retirement plan options that can be considered from the least complex to the most custom/complex.
Plans can include SIMPLE IRA, SEP-IRA, 401(k) Plan, Profit-Sharing Plan, Defined Benefit Plan and Cash Balance Plans. Generally, all plans are non-discriminatory which means all eligible employees and owners can participate. Each plan has different funding criteria including employer vs. employee contributions and different annual limits.
Review our article summarizing specific details about retirement plans for small businesses.
Review and maximize Qualified Business Income deduction.
The Qualified Business Income Deduction was made permanent under the OBBBA of 2025. The Qualified Business Income Deduction (QBID) is a 20% deduction for owners of pass-through entities (S-Corporations, Partnerships, Sole Proprietorships, LLCs) based on the taxable income of the business.
To maximize QBID, business owners should manage taxable income to stay below the thresholds that limit the QBID deduction. Additionally, wages should be optimized to ensure the maximum QBID deduction is allowed. Finally, grouping elections for common business structures/properties should be considered to maximize the overall QBID available.
Clean up the books and reconcile everything
Accurate and reliable financial data is the starting point for good tax planning. To ensure you are evaluating planning strategies appropriately, ensure that the following has been reviewed and completed:
- Reconcile all bank, credit card and loan accounts
- Review A/R and A/P for accuracy
- Identify uncategorized transactions
- Confirm all employee reimbursement requests have been submitted and paid
- Confirm all owner reimbursement requests have been submitted and paid
