Top 5 Year-End Tax Strategies for Small Business Owners

Most small business owners treat tax planning like a problem they'll deal with in April. By then, it's too late—your options are limited to what happened last year, and you're left reacting instead of strategizing.

The truth is, the best tax planning happens before December 31st. That's when you still have time to make moves that reduce your tax bill, position your business for next year, and avoid scrambling when your tax professional asks for documents in March.

Here are the five most impactful year-end tax strategies small business owners should consider before year-end—and why waiting until tax season means leaving money on the table.

1. Maximize Retirement Contributions

If you're profitable and want to reduce taxable income, retirement contributions are one of the most powerful tools available. Contributions to SEP IRAs, Solo 401(k)s, or SIMPLE IRAs are deductible and help you build long-term wealth while lowering this year's tax bill.

SEP IRA: You can contribute up to 25% of your compensation (or 20% of net self-employment income), with a maximum of $70,000 for 2025. SEP IRAs are easy to set up and have minimal paperwork, making them ideal for sole proprietors and small S-Corps.

Solo 401(k): If you're self-employed with no employees, a Solo 401(k) allows you to contribute as both the employee and employer. You can defer up to $23,500 as an employee ($31,000 if you're 50+), plus an employer contribution up to 25% of compensation, with a combined limit of $70,000 ($77,500 if 50+). This is one of the best retirement vehicles for high-earning self-employed business owners.

SIMPLE IRA: If you have employees, a SIMPLE IRA allows contributions of up to $16,500 ($20,000 if 50+) with employer matching. It's easier to administer than a traditional 401(k) and still provides meaningful tax deductions.

Timing matters: SEP and Solo 401(k) contributions can technically be made up until your tax filing deadline (including extensions), but SIMPLE IRA elections must be made by October 1st, and contributions must be completed by year-end. If you haven't set up your retirement plan yet, you still have time for a SEP or Solo 401(k)—but don't wait until April. Getting it done before December 31st gives you clarity on your taxable income now instead of guessing in Q1.

Why this matters: I've seen business owners making $150,000+ with zero retirement contributions simply because they never prioritized it. That's not just a missed tax deduction—it's years of compounding growth lost. A $50,000 SEP contribution saves you roughly $12,500–$18,500 in taxes (depending on your bracket) while building wealth for the future.

2. Accelerate Deductible Expenses

If you know you'll need to make certain purchases or pay specific expenses in January or February, consider moving them into December. Accelerating deductible expenses reduces your current-year taxable income while covering costs you'd incur anyway.

What qualifies:

• Office equipment, computers, software subscriptions

• Prepaid expenses like insurance premiums, rent, or annual subscriptions

• Professional services (legal, accounting, consulting)

• Marketing expenses (ad spend, website development, branding)

• Repairs and maintenance for business property or equipment

Section 179 and Bonus Depreciation: If you're considering a major equipment purchase—vehicles, machinery, computers, office furniture—Section 179 allows you to deduct up to $2,500,000 (2025 limit) of qualifying property in the year it's placed in service, rather than depreciating it over several years. Bonus depreciation allows you to deduct 40% of eligible property costs immediately (this percentage is phasing down annually, so acting sooner is better).

Example: A contractor buying a $60,000 work truck in December can deduct the full amount under Section 179 (assuming it's used 100% for business), reducing taxable income significantly. If that same purchase happens in January, it doesn't help with this year's tax bill.

Cash flow caution: Don't spend money just to save on taxes. Accelerating expenses only makes sense if you were planning to incur those costs anyway and have the cash flow to support it. Spending $10,000 to save $3,000 in taxes doesn't make sense if it strains your working capital in January. (For more on managing cash flow timing, see How to Improve Cash Flow Management for Small Business.)

3. Review Your Entity Structure and Owner Compensation

Your business entity type directly affects how you're taxed—and whether you're paying more than necessary. If your business has grown significantly this year, it's worth revisiting whether your current structure still makes sense.

S-Corp election: If you're operating as a sole proprietor or LLC and consistently netting $100,000+ annually (in Tennessee, due to our 6.5% franchise and excise tax), electing S-Corp status may save you thousands in self-employment taxes. S-Corps allow you to split income between salary (subject to payroll taxes) and distributions (not subject to self-employment tax), creating significant savings when structured correctly.

However, S-Corp election isn't automatic. You need to file Form 2553 with the IRS, and if you want it effective for the current tax year, it generally needs to be filed by March 15th (or within 75 days of forming your entity). If you missed that window, you can still elect S-Corp status now—it will take effect January 1st of next year. This is a strategic move to discuss with your tax professional before year-end so you're ready to implement it in Q1.

Owner compensation strategy: If you're already an S-Corp, make sure your salary is reasonable relative to your distributions. Paying yourself $30,000 in salary while taking $150,000 in distributions will trigger IRS scrutiny. Your salary should reflect what you'd pay someone else to perform your role. (For a detailed breakdown of owner compensation strategies, see Understanding Owner's Draw vs Salary.)

Entity structure changes take time: If you're considering a shift to S-Corp or partnership structure, start the conversation with your tax professional now. Entity changes can't be retroactive, so planning ahead ensures you're set up correctly for next year.

4. Clean Up Your Books and Reconcile Accounts as Part of Your Small Business Year-End Tax Strategies

This isn't glamorous, but clean books are the foundation of accurate tax planning. If your accounts aren't reconciled, your P&L isn't reliable, and you can't make informed decisions about deductions, entity structure, or estimated tax payments.

What needs to happen before year-end:

• Reconcile all bank accounts, credit cards, and loan accounts through December 31st

• Review and correct expense categorizations (miscategorized expenses can cost you deductions or trigger audit flags)

• Separate personal and business expenses (commingling creates headaches during tax prep and increases audit risk)

• Close out accounts receivable and payable (especially if you're on accrual accounting, as AR and AP directly impact taxable income)

• Verify payroll records and prepare 1099 information for contractors (1099s are due January 31st, so start collecting W-9s now)

Why this matters: I've had clients come to me in mid-December with six months of unreconciled transactions. Getting everything cleaned up before year-end is doable, but it's stressful and leaves little time for strategic tax planning. The business owners who stay current on their bookkeeping enter tax season confident instead of anxious—and they usually end up paying less in taxes because they have time to explore deductions and strategies instead of rushing through data entry. (For more on year-end financial prep, see Year-End Financial Prep for Small Business: Checklist & When to Hire Help.)

Strategic insight: Clean books also reveal opportunities you might miss otherwise. Maybe you had an unusually profitable quarter and should accelerate a major purchase. Maybe a client still owes you $15,000 that you can collect before year-end to improve cash flow. You can't see these opportunities if your financials are a mess.

5. Make Estimated Tax Payments and Plan for Q1

If you owe taxes, the worst time to find out is April 15th. By then, you've missed the opportunity to make quarterly estimated payments, and you're facing underpayment penalties on top of the tax bill itself.

Why estimated payments matter: Self-employed business owners and S-Corp shareholders are required to make quarterly estimated tax payments if they expect to owe $1,000 or more in taxes. Missing these payments doesn't just delay your tax bill—it triggers penalties and interest that compound over time.

The Q4 deadline is January 15th: If you haven't made estimated payments throughout the year, you still have time to make a Q4 payment by January 15th, 2026. While it won't eliminate underpayment penalties for earlier quarters, it reduces the total penalty and keeps you from falling further behind.

Run a preliminary tax estimate now: Work with your tax professional or use your year-end financials to project your total tax liability. If you're going to owe more than expected, you have time to make a Q4 payment, accelerate deductions, or increase retirement contributions to reduce the bill. Surprises in April are expensive—both financially and emotionally.

Plan for Q1 cash flow: Tax planning isn't just about this year—it's about ensuring you have the cash to pay your bill when it's due. If you're going to owe $30,000 in April, start setting aside cash now so you're not scrambling or pulling from a line of credit to cover it. Business owners who plan ahead avoid the cash crunch that often follows tax season. (For more on proactive cash flow planning, see How to Improve Cash Flow Management for Small Business.)

Why Year-End Tax Planning Requires More Than DIY Bookkeeping

These five moves are foundational, but executing them correctly requires expertise. Retirement contribution limits, entity structure decisions, Section 179 vs. bonus depreciation, and reasonable compensation calculations aren't guesswork—they're technical decisions with real financial consequences.

This is where fractional CFO support makes a tangible difference. Beyond just processing transactions, strategic CFO services help you:

✓ Model tax scenarios before making decisions

✓ Evaluate entity structure and compensation strategies

✓ Plan retirement contributions to maximize deductions

✓ Ensure expense acceleration doesn't strain cash flow

✓ Coordinate with your tax professional to implement strategies correctly

If you're making year-end tax decisions without a clear financial picture, you're guessing—and guessing costs money.

The Bottom Line

Year-end tax planning isn't about scrambling to find deductions in December. It's about making strategic moves throughout Q4 that reduce your tax bill, position your business for growth, and ensure you're not surprised by a massive tax liability in April.

The business owners who treat tax planning as an ongoing process—not a once-a-year fire drill—consistently pay less in taxes and have more confidence in their financial decisions.

If your books aren't current, if you're unsure about your entity structure, or if you want to explore retirement contributions and expense strategies before year-end, we can help.

Related Posts

Year-end tax planning works best when your financials are organized and your strategy is proactive. These guides can help:

→ Year-End Financial Prep for Small Business: Checklist & When to Hire Help Clean books are the foundation of effective tax planning. Start here if you're behind on reconciliation or categorization.

→ Understanding Owner's Draw vs Salary: How to Pay Yourself the Right Way Entity structure and owner compensation directly impact your tax bill. Make sure you're optimizing both.

→ How to Improve Cash Flow Management for Small Business Accelerating expenses and making estimated payments require strong cash flow planning. Learn how to manage cash timing strategically.

→ Chart of Accounts Explained: The Blueprint of Your Business Finances Accurate expense categorization starts with proper account structure. Get this right before year-end.

Ready to tackle year-end tax planning with confidence?

At Bottomline Capital, we help small business owners make strategic year-end tax decisions backed by clean financials and proactive CFO guidance. Whether you need a year-end cleanup or ongoing advisory support, we're here to help.

📅 Book a Free Consultation to discuss your year-end tax strategy before December 31st.