Five year-end tax tips for businesses
Improve your bottom line with these tax mitigation strategies.
As you close the books on another year, you’ll want to stay open to the myriad ways you can alleviate your business’s tax burden. There are several tax-saving strategies worth considering that can have a major impact on your bottom line. Since tax code is complex and ever-changing, it’s smart to schedule a meeting with your financial professionals before the year winds down.
Here are some tax-saving ideas to bring to the table.
1. Defer income and accelerate deductions.
Because any income you receive by December 31 counts as income for the current year, think about how you can put off income to the next tax year to reduce your adjusted gross income now. There are several strategies you could leverage if you expect your income to be at the same or a lower rate next year. For example, you can send your invoices out a few days later in December to delay receiving payment until January. Conversely, you can prepay some bills that are due in January to take the deduction for this tax year. A little foresight can add up to big tax savings.
2. Reexamine your business structure.
As your company evolves, determine if you business structure still aligns to your financial goals and tax strategy. Change in your revenue or profitability may warrant a redesignation. A multiple-owner LLC is taxed as a partnership by default, while a single-owner LLC is taxed as a sole proprietorship. However, LLCs can choose to be taxed as a C corporation or S corporation by filing IRS Form 2553 – even retroactively at year-end. Some conditions apply, so talk to your tax professional about which option is best for your situation.
3. Did you buy new equipment? Take a deduction.
Section 179 of the IRS tax code was created to encourage businesses to invest in themselves. It allows businesses to deduct the full purchase price of qualifying equipment and/or software purchased (or financed) from your gross income. This deduction of up to $2.5 million applies to new and used equipment, as well as off-the-shelf software. To take the deduction for tax year 2025, the equipment must be purchased or financed and put into service before the end of the calendar year. Section 179 was enacted to help small businesses by allowing them to take a depreciation deduction in one year, rather than over a period of time.
4. Reevaluate your company retirement plan.
If your business has changed significantly this year or since you first started a company retirement plan, it’s a good idea to make sure this important employee incentive is still the right fit. Have you added employees and now qualify for other plan options? Are your employees generally happy with your retirement offering? There are several options to choose from, including SIMPLE IRAs, profit-sharing and safe harbor 401(k)s. A qualified plan offers a deduction for your contributions, and you defer tax on earnings.
5. Deduct vehicle expenses.
If you use your vehicle to visit clients or attend off-site business meetings, you can deduct expenses by taking the standard mileage reimbursement rate for 2025 (70 cents per mile) or calculating your actual expenses. For example, if you drive your car 20,000 miles per year and 10,000 of those miles are for business, you can claim 50% of vehicle expenses, such as gas, tires, repairs, insurance, license and registration fees, and depreciation.
A little forethought and due diligence before year’s end might equate to significant savings come tax time. As a business owner, it may be difficult to find the time to analyze your tax burden, but these five tips should get you started thinking about potential strategies. Your trusted professionals can help you determine what moves will be beneficial for your business’s bottom line.
Withdrawals from tax-deferred accounts may be subject to income taxes, and prior to age 59 ½ a 10% federal penalty tax may apply. The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. While we are familiar with the tax provisions of the issues presented herein, as financial advisors of Raymond James, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional