Strategic Year-End Planning for Business Owners
As December approaches, business owners face their most critical tax planning season. With the One Big Beautiful Bill Act’s provisions taking effect and expanded depreciation windows still available, the next 60 days represent prime opportunity to optimize your tax position.
Like building endurance for the long run, successful tax planning requires consistent effort throughout the year. But year-end presents unique opportunities to accelerate deductions, defer income, and position your business for sustained growth. These five strategies can reduce your 2025 tax burden while building operational resilience for 2026 and beyond.
1. Accelerate Equipment Purchases and Capture Full Depreciation
The Section 179 deduction allows immediate expensing of up to $1.22 million in qualifying business property purchased and placed in service by December 31, 2025. Combined with 100% bonus depreciation for eligible assets, this creates powerful cash flow advantages.
Strategic opportunities:
- Technology upgrades (computers, software, security systems)
- Manufacturing equipment and machinery
- Office furniture and fixtures
- Vehicles registered to the business
Action step: Review your 2026 capital expenditure plans. If purchases are planned for Q1 2026, accelerating them into December 2025 can deliver immediate tax benefits while improving operational efficiency.
2. Optimize Your Business Structure for Pass-Through Benefits
Your business structure determines how much tax you pay. Pass-through entities (sole proprietorships, LLCs, S-Corps, partnerships) can claim the Section 199A qualified business income deduction—up to 20% off business income—while C-Corps face double taxation on profits.
Three moves to optimize your structure:
- S-Corp election (for LLCs or corporations): Reduces self-employment taxes while preserving access to the 20% QBI deduction
- Separate qualifying activities: Split service businesses from product/rental income to protect deduction eligibility
- Right-size owner compensation: Pay yourself enough to satisfy IRS reasonable compensation rules without reducing your qualified business income
Deadline alert: S-Corp elections for 2025 tax benefits must be filed by March 15, 2026—but you need payroll systems running now for quarterly compliance.
For detailed QBI deduction limits, income thresholds, and optimization strategies, see Section 5 below.
3. Accelerate Operating Expenses and Coordinate Year-End Purchases
December is when you coordinate with your bookkeeper to capture deductions and accelerate smaller purchases that deliver immediate tax benefits.
Expense acceleration opportunities:
- Professional services (legal, accounting, marketing) that can be prepaid for 2026
- Office supplies, software licenses, and maintenance contracts for next year
- Business insurance premiums paid annually instead of monthly
- Year-end bonuses to employees (deductible when paid)
- Training, conferences, and professional development expenses
Gather missed receipts for your bookkeeper:
- Personal credit card purchases for business expenses
- Cash payments for business purposes
- Mileage logs from business trips
- Professional development and conference expenses
Quick systems note: Record your meals, entertainment, and mileage monthly – use an app or calendar notes to document the business purpose.
4. Understand New Overtime and Tip Tax Benefits Under OBBBA
The One Big Beautiful Bill Act created tax-free income opportunities for your employees on overtime pay and tips. These changes are effective during calendar years 2025 through 2028, meaning they’ve been in place since January 1, 2025. While your payroll service handles the technical implementation, year-end is the time to ensure compliance and communicate benefits effectively.
What’s tax-free for employees in 2025:
Overtime premium pay: The first $12,500 ($25,000 for joint filers) of extra pay above the hourly rate is federal income tax free
Qualified tips: No federal income tax on tips up to $25,000 annually, with phase-outs starting at $150K/$300K income levels
What you need to do:
- Update tracking systems: Work with your payroll service to ensure separate tracking of qualified overtime (premium portion only) and qualified tips throughout 2025—the IRS allows reasonable estimates for 2025 but these amounts must be reported separately on employee W-2s for 2025 tax filings
- No withholding changes required: The IRS announced no changes to withholding tables for 2025—payroll services continue current procedures and employees claim deductions on their 2025 tax returns filed in 2026
- Employee communication: Explain these benefits during year-end conversations—employees may not realize they qualify for significant tax deductions when filing their 2025 returns
- Monitor industry guidance: Watch your trade association for real-world implementation strategies as these provisions play out
Important: FICA and Medicare taxes still apply to both overtime and tips. Only federal income tax withholding changes.
5. Maximize Qualified Business Income Deduction Through Strategic Planning
The Section 199A deduction can deliver up to 20% savings on qualified business income, but for some specified service trades or businesses (SSTBs)¹ the savings begin phasing out at $394,600 (single) / $494,600 (joint) in 2025.
Qualified Business Income (QBI) is the net income from your business operations—revenue minus ordinary business deductions like salaries, rent, and supplies. The deduction is capped at the lesser of (a) 50% of W-2 wages or (b) 25% of W-2 wages plus 2.5% of qualified property basis.
Four year-end strategies to maximize your deduction:
- Increase W-2 wages: Year-end bonuses or accelerated compensation raise your wage limitation
- Acquire qualified property: Equipment purchases before December 31 boost your property-based limitation
- Separate SSTB activities: Split service businesses from non-SSTB income to protect the deduction
- Time income recognition: Defer SSTB income to 2026 or accelerate 2025 deductions to stay under phase-out thresholds
Note for smaller businesses: 2026 introduces a minimum $400 QBI deduction for any business with $1,000+ in qualified income. Make sure to separate business income on your tax return to capture this benefit.
Year-End Action Plan
These five strategies address immediate tax savings opportunities and important planning considerations for business owners. Equipment purchases, expense acceleration, and QBI optimization can deliver 2025 tax benefits, while entity planning and payroll changes position you for future advantages.
Year-end tax planning is just the beginning. Employer-sponsored retirement plans provide ongoing tax deductions for your business, tax-deferred growth for you and your employees, and powerful recruitment advantages in competitive hiring markets. Want to create or optimize a plan that delivers these benefits? We can do that!
Important Disclosures
This content is for educational purposes only and not intended to provide specific tax, legal, or investment advice. Tax laws are complex and change frequently. Consult a qualified tax advisor for personalized guidance based on your specific circumstances.
All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Individual results may vary based on business structure, income levels, and other factors.
Research and development of this article included the use of artificial intelligence tools.
Footnotes
¹ Specified Service Trades or Businesses (SSTBs) include services in the fields of: health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, investing and investment management, trading or dealing in securities, and any business where the principal asset is the reputation or skill of employees or owners (such as endorsements or celebrity appearances). Engineering and architecture are specifically excluded from SSTB classification.