Year-end planning for business owners

As a business owner, you likely juggle a million things as the year winds down, from wrapping up projects to managing holiday schedules and everything in between. If you’re lucky, you’re able to squeeze in a little time for yourself and your family, too.

But as the end of the year comes into view, now is the time to do some proactive year-end planning. A few smart moves in the final quarter of the year can help you reduce your tax bill and potentially keep more money in your pocket for the coming year.

Let’s break down some practical strategies you can tackle – even with a packed calendar.

Accelerate deductions and defer income

One reliable tax-saving strategy is to accelerate expenses and defer income, depending on your accounting method and the expense. If you have bills to pay, supplies to buy or equipment you’ve been eyeing, consider making those purchases before December 31. These expenses can be deducted from your taxable income for this year, lowering your tax bill.

On the flip side, if you’re expecting payments from clients, you might be able to delay sending invoices until January, potentially shifting that income into the following tax year. Of course, cash flow comes first, and it would not make financial sense to defer income if you need the money now for operations. If you have flexibility, though, this can be a simple way to reduce your tax liability for this year.

Take advantage of 100% bonus depreciation

Did you buy new business assets like machinery, office furniture, computers, software or vehicles this year, or are you still considering it? Under the One Big Beautiful Bill Act (OBBBA) and other recent tax law changes, 100% bonus depreciation is available, meaning eligible businesses can deduct the full cost of qualifying new and used assets in the year they are put into service. Talk with a tax advisor about whether bonus depreciation applies and when assets must be placed in service. If you’re considering a large purchase, making it before year-end could mean a sizable deduction to reduce your tax liability.

Maximize retirement plan contributions

Retirement plans aren’t just good for your future – they’re great for your taxes, too. If you haven’t already, consider contributing to a SEP IRA, SIMPLE IRA or 401(k), or exploring which retirement plan may be appropriate for your business. Contributions you make as an employer are tax-deductible, and you may also be able to make tax-advantaged employee contributions, depending on the plan. If you’re over 50, you may also be eligible for “catch-up” contributions, which let you put away even more. Not only does this reduce your taxable income in the short term, but it also benefits your long-term goal of building a nest egg for retirement.

Fund health savings accounts (HSAs) and use flexible spending accounts (FSAs)

If you have a high-deductible health plan, contributing to an HSA is a smart move. In these “triple-tax-advantaged” accounts, contributions are tax-deductible, the account assets can be invested for tax-free growth and future withdrawals for qualified medical expenses are tax-free. In other words, it’s a win-win-win.

Don’t forget about FSAs, either. If you have money left in your FSA, check your plan’s rules and use any funds that won’t carry over before the applicable deadline, or you could forfeit them.

Review obsolete inventory

If you carry inventory, take a close look at what’s on your shelves. Is anything obsolete, damaged or unsellable? Writing down obsolete or unsellable inventory may provide a tax deduction and clean up your balance sheet. It’s a simple way to reduce taxable income and start the new year with a more accurate picture of your inventory.

Pay employee bonuses

Like many business owners, you may be thinking about rewarding your team for a job well done this year with bonuses. In many cases, you can deduct these bonuses if you pay them before year-end, though timing rules vary. Not only are bonuses a great way to boost morale – you may get a tax benefit from them, too. Just make sure the bonuses are actually paid out, and not just promised, before December 31.

Make charitable contributions

Giving back feels good, and it can help your bottom line at the same time. Donations to qualified charities are tax-deductible, whether you give cash or property. Just make sure to give these contributions before year-end to claim the deductions.

Additionally, recent tax law changes may affect the way charitable deductions work for some taxpayers. If you regularly itemize and give to charity, talk with a tax advisor about whether strategies such as bunching charitable contributions or using a donor-advised fund (DAF) make sense for you.

Review your business structure

Is your current business structure (e.g., LLC, S corporation, C corporation, sole proprietorship) still the best fit? The right structure can make a big difference in your tax liability.

If you’ve had major changes in your business, it might be time to chat with your accountant about whether a switch could save you money. If you intend to sell your business in the next five years, it may make sense for some business owners to explore converting to a C corporation and ask whether qualified small business stock (QSBS) rules might apply. However, the law is complex and not available to every business or business owner, so speaking with an experienced tax and legal advisor to explore your options is highly recommended.

Claim available tax credits

There are a variety of tax credits available to businesses, from research and development to energy efficiency and hiring credits. These credits directly reduce your tax bill, so don’t leave them on the table. Ask your tax advisor which credits you might qualify for. Some credits change over time, so consider speaking with your tax advisor well before year-end about what may apply to your business.

Review estimated tax payments

Finally, make sure you’ve paid enough in estimated taxes throughout the year, as underpaying can lead to penalties and interest. If you’re not sure whether you’ve paid enough so far this year, your tax advisor can help you run the numbers and make any necessary payments before year-end to help minimize potential penalties for underpayment.

The bottom line

Year-end tax planning doesn’t have to be overwhelming, even if it feels that way. The good news is that even if you only tackle a few of these strategies, you could still potentially see meaningful savings. The key is to be proactive – don’t wait until the start of next year’s tax season to start thinking about your taxes.

More importantly, remember that every business is different. A quick call with your tax advisor can help you identify the best moves for your situation. A little time spent now to review your business finances and make a few smart year-end decisions can set you up for a successful – and more profitable – new year.

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