Effective tax planning works best when done throughout the year, but December still offers valuable opportunities to reduce your 2025 tax liability. Below are six strategies business owners can consider before year-end.
1. Delay Invoicing to Defer Income
If your business uses the cash method of accounting and you would benefit from pushing taxable income into next year, consider holding off on issuing invoices until early 2026. This simple timing shift can help lower your 2025 taxable income.
2. Prepay Deductible Expenses
Cash-basis businesses may be able to reduce 2025 taxes by prepaying certain 2026 expenses before December 31. Common prepaid items include:
- Lease or rent payments
- Insurance premiums
- Utility bills
- Office supplies
- State and local taxes
Many of these expenses are deductible even when paid up to 12 months in advance, potentially giving you a meaningful deduction this year.
3. Invest in Equipment Before Year-End
Now is an excellent time to purchase qualifying equipment or fixed assets. Thanks to updated rules under the One Big Beautiful Bill Act:
- 100% bonus depreciation has returned for assets acquired and placed in service after January 19, 2025
- The Section 179 expensing limit has doubled to $2.5 million for 2025
To claim these deductions on your 2025 return, the assets must be placed in service by December 31, not merely purchased.
4. Use Credit Cards to Lock In Deductions
If you want to prepay expenses or buy equipment but your cash flow is tight, using a business credit card can help. For tax purposes, expenses paid by credit card are generally deductible when charged, even if you don’t pay the card off until next year.
5. Boost Contributions to Retirement Plans
For self-employed individuals and owners of pass-through businesses (such as partnerships, S corporations, and most LLCs), increasing deductible retirement plan contributions can significantly reduce 2025 taxable income.
Most plans require contributions by year-end, but others — including SEP IRAs — allow you to contribute up until your business’s tax filing deadline, including extensions.
6. Maximize the Pass-Through Deduction
Owners of sole proprietorships and pass-through entities may qualify for the 20% qualified business income (QBI) deduction. However, when taxable income exceeds:
- $197,300 for single filers
- $394,600 for married couples filing jointly
certain phase-outs and limitations apply.
One way to preserve the full benefit is to lower taxable income—for example, by increasing retirement plan contributions before year-end.
Final Thoughts
Each of these strategies has specific rules, limitations, and eligibility requirements. Before implementing them, consult your tax advisor to ensure they fit your situation. We can help you explore these options and identify additional ways to minimize your tax burden this year and next.
© 2025