As the year winds down, business owners and self-employed professionals have unique opportunities to strengthen their financial position. From managing income and expenses to maximizing retirement contributions, a few strategic moves before December 31 can help you minimize your tax burden and start the new year on the right foot.
Review Income and Expenses
Now’s the time to take a close look at your books. Consider how timing your income and deductions may affect your tax situation:
- Defer income if you expect to be in a lower tax bracket next year. For example, delay sending invoices until January if cash flow allows.
- Accelerate deductions by prepaying expenses such as rent, utilities, or business supplies before year-end.
- Keep accurate records of all deductible items. This includes equipment purchases, travel, professional services, and home office expenses.
A tax professional can help you determine which strategies make sense based on your income trends and filing status.
Maximize Retirement Contributions
Retirement planning can be especially powerful for business owners because you can choose from several tax-advantaged options that allow higher contribution limits than traditional IRAs.
Common options include:
- Solo 401(k): For self-employed individuals with no employees other than a spouse. For 2025, you can contribute up to $23,000 as an employee, plus a $7,500 catch-up if you’re 50 or older, and up to 25% of compensation as an employer contribution (total limit capped by IRS rules).
- SEP IRA: Allows contributions up to 25% of net earnings from self-employment, up to an annual maximum of $69,000 for 2025.
- Defined Benefit Plan: Suitable for high-income earners seeking larger deductions and accelerated retirement savings. These plans require actuarial setup but can offer significant tax advantages.
Each plan type has different setup deadlines and administrative requirements, so it’s wise to review your options before year-end with your financial or tax advisor.
Evaluate Estimated Taxes
If you pay quarterly estimated taxes, now’s a good time to confirm you’ve met your 2025 obligations.
- The final quarterly payment for the 2025 tax year is due January 15, 2026.
- Review your income for the year to ensure your payments are sufficient to avoid penalties.
- If you had higher-than-expected income or major business changes, consider adjusting your final payment.
The IRS offers an Estimated Tax Worksheet to help calculate what you owe.
Plan Ahead for 2026
Once you’ve wrapped up 2025, take a moment to look forward. Update your business goals, revisit your pricing structure, and assess cash reserves. Building tax-efficient habits and consistent retirement savings into your business plan can make next year’s planning even smoother.
The Bottom Line
For business owners and self-employed professionals, proactive planning at year-end can translate to meaningful tax savings and stronger long-term growth. With the right strategies in place, you can turn December into a powerful time for both reflection and financial advantage.
