Smart Tax Strategies for Small Business Owners Before Year-End

By Gregg Gonzalez, CFP®

As the end of the year approaches, small business owners have a golden opportunity to take control of their tax situation. Proactive tax planning isn’t just about cutting your tax bill… it’s about maximizing profits, protecting your future, and setting your business up for long-term success.

If you wait until tax season to think about deductions or retirement contributions, it’s often too late. The best tax-saving moves happen before December 31. In this article, we’ll walk through key strategies small business owners can use right now to reduce tax liabilities and keep more of what they earn.

1. Maximize Business Deductions

Now’s the time to review your year-to-date income and expenses and make smart purchases or investments that qualify as deductible business expenses.

Common deductible items include:

Office supplies and equipment
Marketing and advertising costs
Business travel and mileage
Software and technology upgrades
Professional services (legal, financial, etc.)

Tip: If you’re on a cash-basis accounting system, expenses are deductible in the year they are paid so completing purchases by December 31 can lower this year’s taxable income.

2. Take Advantage of Section 179 and Bonus Depreciation

If you’re considering investing in equipment, computers, furniture, or even vehicles for your business, Section 179 allows you to deduct the full purchase price (up to certain limits) in the year the item is placed in service.

Bonus depreciation can also allow you to write off a significant portion or all of qualified property costs in the first year.

Tip: To qualify, the asset must be in use by year-end. Don’t wait until the last minute to make large purchases.

3. Contribute to a Retirement Plan

Contributing to a retirement plan not only helps you save for the future it can also provide a meaningful tax deduction today.

Depending on your business structure and goals, consider:

SEP IRA: Easy to set up, with high contribution limits (up to 25% of compensation, capped at $69,000 for 2024).
Solo 401(k): Great for sole proprietors or those with a spouse on payroll allows both employee and employer contributions.
Simple IRA or defined benefit plans: Ideal for growing businesses or those with a few employees.

Bonus: Some plans must be established by December 31 to be eligible for contributions for the current year.

4. Strategically Shift Income and Expenses

If you expect your income to be higher this year than next, it might make sense to accelerate expenses and defer income. The opposite is true if you expect next year’s tax rate to increase.

Ideas for income shifting:

Delay invoicing clients until January
Prepay vendors or recurring expenses
Stock up on inventory or supplies
Pay year-end bonuses early (or delay until next year, based on your goals)

Work with your tax advisor to tailor this strategy to your unique situation and avoid accidentally triggering IRS scrutiny.

5. Hire Your Family (Legitimately)

Paying a spouse or child to work in your business can be a smart way to shift income to a lower tax bracket and the wages are deductible if the work is legitimate and properly documented.

Example: Paying your teenager $6,000 to assist with admin tasks, marketing, or inventory not only gives them real-world experience but also creates an opportunity to fund a Roth IRA for their future.

Be sure to follow IRS guidelines for fair wages, job documentation, and tax withholding (rules vary depending on the business structure and age of the child).

6. Review Estimated Taxes and Withholding

Avoid unnecessary penalties by reviewing your estimated tax payments. If income has been higher than expected this year, now’s a good time to make an additional payment to cover any shortfall.

Also, double-check withholding amounts if you’re taking payroll through the business — especially if you made changes to salary, bonuses, or distributions.

7. Don’t Forget the Qualified Business Income Deduction (QBI)

Many small business owners may qualify for the 20% deduction on qualified business income under Section 199A but income limits apply, and strategic planning may be necessary to maximize this benefit.

Actions like adjusting wages, retirement contributions, or entity structure (LLC vs. S-Corp) can impact eligibility. Discuss QBI strategies with your tax professional to make sure you don’t miss out.

Final Thoughts: Tax Planning Is Profit Planning

Tax season shouldn’t be a time of surprises. By taking proactive steps before the year ends, small business owners can make a meaningful difference in their financial outcomes, keeping more of their hard-earned money, funding their future, and minimizing stress in the process.

Ready to Take Action?
Our team specializes in tax-smart financial planning for business owners. Let’s schedule a year-end strategy session to review your unique situation and create a personalized plan to reduce your tax liability and fuel your future success.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

RetireStrong Financial Advisors and LPL Financial do not offer tax advice or services.