Small Business Tax Tips to Maximize Your 2025 Deductions and Set Up Success for 2026
If you filed for an extension on your business entity’s tax return, today's your deadline. But whether you're scrambling to file or already done, now's the perfect time to focus on smart tax planning for the remainder of 2025. The decisions you make in these final months can significantly impact your tax bill and cash flow heading into next year.
Here are the key strategies every small and family business owner should consider before December 31st.
Maximize Your Equipment Purchases with Section 179 and Bonus Depreciation
One of the most powerful tools in your tax arsenal is the Section 179 deduction combined with bonus depreciation. For 2025, you can immediately deduct the full cost of qualifying business equipment, furniture, and software placed in service on or after January 20, 2025, thanks to 100% bonus depreciation.
This means if you've been putting off that new computer system, office furniture, or manufacturing equipment, now's the time to act. Instead of depreciating these purchases over several years, you can write off the entire amount in 2025, reducing your taxable income dollar-for-dollar.
The Section 179 limit for 2025 is $2,500,000, with a phase-out beginning at $4,000,000 in total equipment purchases. For most small businesses, this provides enormous flexibility to make necessary investments while minimizing current-year taxes.
If you've purchased real estate for your business, don't overlook the potential for Section 179 deductions on building components. A cost-segregation study can identify elements that may qualify for immediate Section 179 treatment rather than the longer depreciation schedules typically required for real estate. This strategy can unlock significant additional deductions you might not have realized were available.
Consider timing your purchases strategically. If you know you'll need equipment in early 2026, buying it by December 31st could provide immediate tax benefits. Just ensure the equipment is actually placed in service before year-end – simply ordering it isn't enough.
Evaluate Your Entity Election for Next Year
Now's also the time to think about your business structure for 2026. If you're currently operating as a single-member LLC or partnership, you might benefit from making an S Corporation election. This election must be filed by March 15, 2026, to be effective for the entire 2026 tax year.
The S election can provide significant self-employment tax savings if your business is profitable. Instead of paying self-employment tax on all your business income, you'd pay yourself a reasonable salary (subject to payroll taxes) and take additional profits as distributions (not subject to self-employment tax).
However, this strategy isn't right for everyone. S Corporation status comes with additional compliance requirements and costs, including payroll processing and filing a separate tax return. The savings need to outweigh these additional expenses and administrative burden.
Similarly, if you've been thinking about other structural changes – perhaps moving from a partnership to an LLC, or vice versa – start planning now. These transitions often require careful timing and coordination with your tax professional.
Stay Current with Your CPA and All Tax Obligations
One of the costliest mistakes I see small business owners make is falling behind on their tax obligations. Late filing penalties, late payment penalties, and estimated tax underpayment penalties can quickly add up to thousands of dollars – money that could be better invested in your business.
Schedule a meeting with your CPA before November 1st to review:
Your 2025 estimated tax payments and whether adjustments are needed
Fourth-quarter estimated payment due January 15, 2026
Any missed filings or outstanding compliance issues
Payroll tax deposits and quarterly returns
State and local tax obligations, which vary significantly by jurisdiction
Don't wait until the last minute to address these issues. Many penalties are avoidable with proper planning, but once you're behind, your options become limited and expensive.
Strategic Capital Gains and Loss Planning
If your business has investments or you're considering selling business assets, the final months of 2025 offer important planning opportunities. This is especially relevant if you have significant capital gains or losses from earlier in the year.
If you have capital losses exceeding your capital gains, consider whether realizing additional gains before year-end makes sense. Conversely, if you have substantial capital gains, look for opportunities to harvest losses to offset them.
For business owners considering selling equipment, real estate, or other assets, timing can make a significant difference. Installment sales might allow you to spread the tax impact over multiple years, while like-kind exchanges could defer taxes entirely in certain situations.
Remember that different types of assets receive different tax treatment. The sale of business equipment might qualify for favorable Section 1231 treatment, while other assets might be taxed as ordinary income or capital gains.
Accelerate Deductible Expenses
Consider accelerating deductible business expenses into 2025 if you expect to be in a higher tax bracket this year than next. This might include:
Prepaying professional services, insurance, or software subscriptions
Making charitable contributions from your business
Paying bonuses to employees before December 31st
Purchasing necessary office supplies and materials
Scheduling and paying for equipment maintenance
Just ensure these expenses serve a legitimate business purpose and aren't simply tax-motivated transactions that might draw IRS scrutiny.
Review Your Retirement Plan Contributions
Don't overlook retirement planning opportunities. If you have employees, consider whether implementing or enhancing a retirement plan makes sense. SEP-IRAs and Solo 401(k)s can provide substantial deduction opportunities while helping you save for retirement.
For 2025, you can contribute up to 25% of compensation to a SEP-IRA, with a maximum of $70,000. Solo 401(k)s allow even higher contribution limits if you're self-employed without employees.
These contributions can typically be made up until your tax filing deadline (including extensions), providing flexibility even after year-end.
The Bottom Line
Effective tax planning isn't just about minimizing your current tax bill – it's about optimizing your overall financial strategy. The moves you make before December 31st can impact your cash flow, growth opportunities, and long-term wealth building.
Don't try to navigate these decisions alone. Work with a qualified CPA who understands small business taxation and can help you implement these strategies properly. The cost of professional advice is almost always less than the cost of missed opportunities or compliance mistakes.
Remember, tax laws change frequently, and what works for one business might not work for another. But by staying proactive and planning ahead, you can ensure your business takes advantage of every legitimate opportunity to minimize taxes and maximize profits.
Need Help Structuring These Strategies?
If you're looking for guidance on how these tax strategies fit into your overall business protection and deal structure, I'd be happy to discuss how proper planning can strengthen both your tax position and your business agreements. While your CPA handles the technical tax implementation, I can help ensure your contracts, entity structures, and business deals are aligned with your tax strategies.
Feel free to reach out – sometimes a quick conversation can save you thousands in taxes and protect your business from unnecessary risks.
Start these conversations now – your future self (and your bank account) will thank you.
Tax Disclaimer: This article is for informational purposes only and should not be considered as tax advice and cannot be used to avoid any tax penalties. Tax laws are complex and subject to change, and individual circumstances vary significantly. Always consult with a qualified tax professional or CPA before implementing any tax strategies discussed in this article. The author is not a tax professional and does not provide tax advice.