Year-round tax planning produces the best results, but December still offers opportunities to reduce your business taxes. Use these six strategies before year-end:
1. Postpone Invoicing
Strategy: Delay sending invoices if you use the cash method of accounting.
Why it works: Deferring income to the next tax year reduces your current year’s taxable income.
Tip: Only use this strategy if it aligns with your cash flow needs.
2. Prepay Expenses
Strategy: Prepay certain next year’s expenses before the current year-end.
Common deductions include:
- Lease payments
- Insurance premiums
- Utility bills
- Office supplies
- Taxes
Benefit: Many expenses are deductible up to 12 months in advance, lowering this year’s taxable income.
3. Buy Equipment
Strategy: Purchase equipment or fixed assets and use 100% bonus depreciation or Section 179 expensing.
2025 OBBB updates:
- Bonus depreciation: Available for assets acquired and placed in service after January 19 of your current tax year.
- Section 179 limit: $2.5 million for your current tax year.
Key point: Assets must be placed in service by December 31 of your current tax year to claim deductions.
4. Use Business Credit Cards
Strategy: Charge prepayments or equipment purchases to a business credit card.
Why it helps: Expenses are deductible when charged, even if the card bill is paid in 2026.
Tip: Track credit card charges carefully to ensure proper tax reporting.
5. Contribute to Retirement Plans
Strategy: Increase deductible contributions to retirement plans for self-employed or pass-through business owners.
Deadline: Most contributions must be made by year-end, but some plans, such as SEP IRAs, allow contributions until the tax return due date (with extensions).
Benefit: Retirement contributions reduce taxable income while boosting employee benefits.
6. Maximize the Pass-Through Deduction
Strategy: Reduce taxable income to qualify for the 20% Qualified Business Income (QBI) deduction.
Income thresholds for 2025 (deduction starts to phase out):
- $197,300 for single filers
- $394,600 for married filing jointly
Tip: Increase retirement contributions or defer income to stay below the threshold and maximize the deduction.
Year-End Tax Planning Takeaways
- Many strategies have limitations and restrictions — always consult a tax professional.
- December is a key opportunity to lower your tax liability and set up savings for next year.
Combining these strategies can maximize deductions, improve cash flow, and protect your business’s bottom line.