How to Cut Your Business Taxes Before Year-End

Business Taxes Before Year-End

Business owners often find themselves racing against the clock at year-end, grappling with mounting tax liabilities that erode profits and constrain growth. Inexperienced tax preparers may overlook timely strategies, such as accelerating deductions or deferring income, resulting in overpayments and missed opportunities under the evolving 2025 tax code. With the One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, reinstating 100% bonus depreciation and expanding other incentives, are you equipped to minimize your tax burden before December 31? At Kewal Krishan & Co, our expert tax advisors enable businesses to achieve an average annual savings of $50,000, potentially reaching $1 million over a decade through proactive year-end planning. This blog outlines essential strategies to cut your business taxes before 2025 ends, supported by Internal Revenue Code (IRC) provisions, with precise examples and compliance steps. From leveraging depreciation to optimizing retirement contributions, these approaches are designed for immediate implementation. Transitioning to the core strategies, timely action can transform your tax position and bolster financial resilience.

Top Year-End Tax Strategies for Businesses in 2025

Year-end planning focuses on accelerating deductions and deferring income under IRC § 162 and § 451, respectively. Below are key strategies, reported on forms like Schedule C (Form 1040) for sole proprietors, Form 1120 for corporations, or Form 4562 for depreciation.

1. Accelerate Deductions

Prepay expenses like rent, supplies, or insurance deductible in 2025 under the 12-month rule (IRC § 461). Maximize Section 179 expensing (up to $1.22 million, adjusted) or 100% bonus depreciation under IRC § 168(k), reinstated by OBBBA for qualified property placed in service by December 31.

2. Defer Income

Delay invoicing or collections until 2026 to defer recognition under IRC § 451, shifting tax to the next year.

3. Maximize Retirement Contributions

Contribute to SEP-IRA (up to 25% of compensation) or 401(k) plans (up to $23,500 employee deferral, plus employer match) by year-end or return due date, deductible under IRC § 404.

4. Claim Tax Credits

Pursue R&D credits (IRC § 41), energy-efficient investments (IRC § 179D), or Work Opportunity Tax Credit (IRC § 51) for eligible hires before December 31.

5. Review Inventory and Bad Debts

Write off obsolete inventory or uncollectible debts under IRC § 166, using specific identification for accuracy.

For detailed rules, see IRS Publication 535.

Detailed Example: Implementing Year-End Strategies

Consider a consulting firm with $800,000 revenue and $600,000 expenses in 2025, projecting $200,000 taxable income. To reduce taxes before year-end:

• Accelerate Deductions: Purchases $50,000 equipment, claiming 100% bonus depreciation under IRC § 168(k) ($50,000 deduction). Prepays $20,000 rent ($20,000 deduction).
• Defer Income: Defers $30,000 invoice to January 2026.
• Retirement Contributions: Contributes $40,000 to SEP-IRA (deductible under IRC § 404).
• Tax Credits: Claims $10,000 R&D credit (IRC § 41).
• Bad Debts: Writes off $15,000 uncollectible accounts (IRC § 166).

Adjusted income: $200,000 – $50,000 – $20,000 – $40,000 – $15,000 + $30,000 deferral wait—no, deferral reduces 2025 income to $770,000, expenses rise to $725,000. Net taxable $45,000, plus $10,000 credit. At 21% corporate rate: $9,450 tax vs. original $42,000—saving $32,550. Credit reduces to zero liability.

Alternative Scenario

Skipping depreciation and contributions: Tax remains $42,000, forgoing $32,550 savings.

Step-by-Step Guide for Taxpayer Compliance

To execute year-end strategies and comply with IRS rules, follow these steps:

1. Review Financials: Analyze income/expenses to identify deferral/deduction opportunities per IRC § 451/461.
2. Acquire Assets: Purchase and place qualified property in service by December 31 for depreciation (IRC § 168(k)/179); retain invoices.
3. Defer Billings: Hold invoices or structure contracts for post-2025 receipt.
4. Fund Retirement: Contribute to plans by December 31 or return due date; report on Form 5500 if required.
5. Claim Credits/Write-Offs: Document R&D activities, bad debts with evidence (IRC § 41/166).
6. File Returns: Report on appropriate forms by March/April 2026 deadlines, extending if needed with Form 7004/4868.
7. Pay Estimates: Adjust fourth-quarter estimates via Form 1120-W or 1040-ES to avoid underpayment penalties (IRC § 6655).
8. Retain Records: Keep receipts, contracts, and calculations for three years (IRC § 6001).

For multi-entity businesses, consider Our Business Tax Services.

Common Pitfalls to Avoid

• Economic Performance Rule: Ensure prepaid expenses meet 12-month rule or services are performed (IRC § 461(h)).
• Constructive Receipt: Avoid deferring income already available (IRC § 451).
• Reasonable Cause: Document credit/write-off substantiation to withstand audits.
• AMT Implications: Monitor Alternative Minimum Tax triggers from accelerated deductions (IRC § 55).

Why Work with a Tax Expert?

Year-end tax planning demands precision amid 2025’s OBBBA changes, where missteps in depreciation or deferrals can trigger penalties or lost savings. Generic preparers may ignore timing rules or credit eligibility, costing thousands. Kewal Krishan & Co specializes in IRC-compliant strategies, ensuring seamless implementation and maximum reductions. Our expertise averts common errors, as highlighted in Our Tax Litigation Services.

Conclusion

Implementing year-end strategies like accelerating deductions, deferring income, and claiming credits under IRC provisions can substantially cut your 2025 business taxes, enhanced by OBBBA’s incentives. Timely action before December 31 is crucial to lock in savings and ensure compliance. Don’t let procrastination diminish your profits—execute these measures now to fortify your financial outlook.

Call to Action

Schedule a consultation with Anshul Goyal, CPA EA FCA, a licensed U.S. CPA and Enrolled Agent, admitted to practice before the IRS, specializing in tax litigation and cross-border tax for U.S. businesses and Indians in the U.S. Contact us at Kewal Krishan & Co to slash your year-end taxes.

About Our CPA

Anshul Goyal, CPA EA FCA, is a licensed U.S. CPA and Enrolled Agent, representing clients in IRS tax litigation and assisting with cross-border tax compliance for U.S. businesses and Indians in the U.S. His expertise ensures tailored strategies that maximize savings and ensure compliance.

Disclaimer

This blog provides general information for educational purposes only and does not constitute tax, legal, or financial advice. Tax laws change frequently, and individual circumstances vary. Consult a qualified tax professional before making decisions. The author and firm disclaim liability for actions taken based on this content.

FAQs

1. How to accelerate deductions?

Prepay expenses and use bonus depreciation/Section 179 for assets placed in service by year-end (IRC § 168(k)).

2. Can I defer all income?

Only if not constructively received; structure contracts accordingly (IRC § 451).

3. What’s the retirement contribution deadline?

December 31 for 401(k) deferrals; return due date for SEP-IRA (IRC § 404).

4. How to claim R&D credit?

Document qualified expenses and file Form 6765 with your return (IRC § 41).

5. What records are needed?

Receipts, contracts, and substantiation for three years (IRC § 6001).