Originally published December 2015. Last updated March 2026.
December is when the window closes on most tax planning moves. If you own a business, these five strategies can reduce your 2025 tax bill.
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1. Max Out Retirement Plan Contributions
Retirement plan contributions are the single biggest tax deduction available to most business owners.
- Solo 401(k): Up to $23,500 employee + 25% of net income as employer contribution. Total cap: $70,000 (more with catch-up).
- SEP IRA: Up to 25% of compensation, max $70,000.
- SIMPLE IRA: $16,500 employee + 3% match. Deadline is earlier than other plans.
- Cash balance plan: $100,000-$300,000+ depending on age. Best for high-income owners in their 50s and 60s.
The employee contribution deadline for 401(k) plans is December 31. Employer contributions can be made up to the tax filing deadline (including extensions).
2. Buy Equipment and Software Before December 31
Section 179 allows you to deduct the full purchase price of qualifying equipment, vehicles, and software in the year of purchase rather than depreciating over time.
The 2025 Section 179 deduction limit is $1,250,000. Bonus depreciation remains at 60% for assets placed in service in 2025 (stepping down from 80% in 2024).
If you’ve been putting off buying equipment, computers, software, or vehicles, doing it before year-end accelerates the deduction into this tax year.
3. Time Your Income and Expenses
If you’re on a cash basis (most small businesses are), you have some control over when you recognize income and expenses:
- Defer income: Delay sending invoices or collecting receivables until January to push income into next year.
- Accelerate expenses: Prepay January rent, stock up on supplies, pay outstanding bills before December 31.
This works in reverse too. If you expect lower income next year (retiring, selling the business), you might accelerate income into this year while you’re in a lower bracket.
Kentucky’s flat 4% state income tax simplifies some of this calculus but doesn’t eliminate it. Federal brackets still matter.
4. Make Charitable Contributions
Business charitable contributions are deductible. Options:
- Cash donations: Deductible up to 60% of AGI for individuals, 10% of taxable income for C-corps.
- Donate appreciated stock: Avoid capital gains tax and deduct full market value (up to 30% of AGI).
- Donor-advised fund: Make a large contribution this year for the deduction, distribute grants over time.
5. Review Your Entity Structure
Year-end is a good time to evaluate whether your business structure is still optimal:
- S-corp election: If you’re a sole proprietor or single-member LLC earning $60,000+ in profit, an S-corp election can save 15.3% self-employment tax on the portion of profits above a reasonable salary.
- QBI deduction: The qualified business income deduction allows eligible businesses to deduct up to 20% of QBI. This is scheduled to expire after 2025 if the TCJA sunsets.
- Reasonable salary review: If you’re an S-corp, the IRS expects you to pay yourself a reasonable salary. Too low triggers audits. Too high means you’re overpaying payroll taxes.
FAQ
When is the deadline for setting up a Solo 401(k)?
The plan must be established by December 31 of the tax year for which you want employee deferrals. Employer contributions can be made until the tax filing deadline.
Can I still set up a SEP IRA after year-end?
Yes. A SEP IRA can be established and funded up to your tax filing deadline, including extensions. That’s October 15 for most people.
Schedule a free 20-minute consultation to review your year-end tax strategy.
R.L. Brown Wealth Management
106 W Vine St, Suite 300, Lexington, KY 40507
859.317.5889
