Tax Planning Strategies for Small Business Owners to Start Now
With 2025 bringing some key tax updates for small businesses, now is the time to prepare. Implementing smart tax strategies early can help reduce your liabilities and maximize deductions. Here are five practical steps to get started:
1. Track Expenses Accurately and Consistently
Keeping detailed, up-to-date records of business expenses is essential for maximizing deductions. If it’s not documented, it can’t be deducted. Use your preferred accounting software to track purchases in real time, everything from office supplies and professional services to software subscriptions. Save all receipts and supporting documentation to ensure you’re audit-ready.
2. Optimize Payroll and Employee Benefits
New in 2025: expanded tax credits for small businesses starting retirement plans. If you offer a new retirement plan, you may qualify for up to $5,000 in tax credits over three years. It’s also a good time to review your compensation structure. For S corporations, balancing salary and distributions can help minimize payroll taxes while staying compliant with IRS reasonable compensation rules.
3. Stay on Top of Estimated Tax Payments
Late or underpaid estimated taxes can lead to penalties and interest. If you’re self-employed, review your estimated tax strategy now. Make sure you’re paying the correct amounts on time each quarter to avoid surprises come tax season.
4. Consider Pass-Through Entity Taxation Benefits
If your business is structured as a sole proprietorship, LLC, or S corporation, pass-through taxation may offer significant advantages. You may still qualify for the 20% Qualified Business Income (QBI) deduction, though this benefit is scheduled to sunset after 2025. Additionally, some states have enacted Pass-Through Entity Taxes (PTETs), which allow businesses to pay state income tax at the entity level—helping bypass the federal cap on state and local tax deductions.
5. Leverage Depreciation for Immediate Write-Offs
Strategic asset purchases can reduce your tax burden through depreciation. Under Section 179, you may be able to fully deduct the cost of qualifying equipment or software in the year it’s placed in service—up to $1.25 million in 2025. Bonus depreciation, while being phased out, still offers a valuable opportunity to immediately deduct a portion of the cost of eligible assets, making it a smart move before the full benefit disappears.
Effective tax planning isn’t just for year-end—it’s a year-round strategy. Staying proactive now will help you take full advantage of new opportunities in 2025, and ensure a smoother, less stressful tax season.
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