2025 Year-End Tax Moves: What Business Owners Should Do Before December 31

As 2025 draws to a close, business owners face a critical window to make tax-smart moves that can reduce liability, improve cash flow, and set the stage for a strong start to 2026. With the One Big Beautiful Bill Act (OBBBA) reshaping deductions, credits, and thresholds, this year’s planning carries extra weight.

Here’s a practical checklist to help you finish the year financially strong and tax-efficient.

1. Maximize Accelerated Deductions

Review opportunities to expense purchases made before year-end:

• Section 179 and bonus depreciation: Evaluate whether major equipment, vehicles, or technology upgrades qualify for accelerated write-offs under updated OBBBA limits.
• Prepaid expenses: For cash-basis taxpayers, consider prepaying certain deductible expenses (like insurance or supplies) before December 31 to capture the deduction in 2025.
• Repair vs. improvement: Properly categorize repairs to ensure immediate deduction rather than capitalization.

Tip: If you’re planning large capital investments in early 2026, running a projection with your CPA could reveal tax-timing advantages by acting now.

2. Optimize Compensation and Bonuses

Year-end is the time to review how profits will flow through to owners and key employees.

• Owner compensation: Ensure salaries are reasonable for S corporation owners to maintain IRS compliance and optimize payroll tax exposure.
• Bonuses and profit-sharing: Declare bonuses before year-end (even if paid within 2½ months) to lock in deductions for 2025.
• Retirement contributions: Max out 401(k), SEP, or defined benefit plan contributions — these remain among the most powerful tax deferral tools available.

Pro tip: For high-income years, consider a cash balance plan to boost deductions and accelerate retirement savings.

3. Review Tax Credits and Incentives

Recent legislation expanded or modified several business credits, including:

• Energy efficiency credits for commercial building improvements.
• Research & development (R&D) credits for companies investing in innovation or process improvements.
• Work Opportunity Tax Credit (WOTC) for eligible hires made in 2025.

Even if you’ve never claimed credits before, your CPA can help you identify qualifying activities and ensure proper documentation.

4. Manage Income and Expenses Strategically

Consider the timing of revenue and expenses:

• Defer income if you expect similar or lower tax rates in 2026. Delay invoicing or advance deposits where appropriate.
• Accelerate income if your 2025 rates are unusually low or you anticipate higher earnings next year.
• Bad debts and obsolete inventory should be written off before year-end to capture deductions.

Ask your CPA for a projection comparing both scenarios — sometimes a simple timing shift can save thousands.

5. Review Your Entity and Tax Elections

The One Big Beautiful Bill Act may shift the advantage between S Corps, partnerships, and C Corps depending on income level, owner compensation, and available deductions.

• Consider whether an entity restructuring in 2026 could yield a lower effective tax rate.
• Review pass-through deduction eligibility and potential limitations under OBBBA.

6. Don’t Forget State and Local Tax Planning

State tax conformity to OBBBA varies widely. Confirm how your state treats:

• Pass-through entity (PTE) tax elections
• Bonus depreciation and Section 179
• Credit carryforwards or limitations

Your CPA can help align your federal and state strategy to avoid surprises come filing season.

7. Schedule Your Year-End Review

A proactive meeting with your CPA before December 31 ensures nothing slips through the cracks — from payroll adjustments to asset purchases and year-end accruals.

Key takeaway: The window for 2025 planning closes at midnight on December 31. Reviewing your strategy now can help you capture every available deduction and credit while positioning your business for a strong start in 2026.

If you have questions about year-end tax planning, leave a comment below, or feel free to reach out to me directly. I’m happy to help!