Small Business Tax Planning: 14 Ways To Save on Taxes in 2025

Filing business taxes is an annual responsibility that can't be ignored. Owners and employees also have to file their returns. While you may be wondering about small business tax saving tactics when you file your business tax return, your employees may wonder how to save on taxes themselves. For employers, options include maximizing deductions and credits, sheltering revenue, and contributing to employee benefit plans. Planning with the following business tax-saving tips may help you and your staff enjoy yearly savings.

Employers can use these small business tax tips in 2025 to reduce taxes and help guide their employees.

14 Tax Saving Tips for Your Business

Don't wait until it's time to file your business tax return to act. You can significantly reduce your tax liability by taking early action and implementing several strategies now. Remember, it's always a good idea to consult your company tax expert for more information.

1. Take Every Deduction and Credit Allowed

Most, but not all, of your business outlays can generate tax deductions or credits that effectively offset the tax on your profits. Accrued expenses can be used to maximize deductions by recognizing expenses when they are incurred, even if they are not yet paid. Check what's available to you and determine whether you qualify for these write-offs.

2. Adopt or Contribute to a Qualified Retirement Plan

You can gain a current tax deduction for your contributions while building up tax-deferred income for retirement. If you have employees, the plan must cover those eligible to participate. The plan can require or allow employer contributions and may permit employees to make salary contributions pre-tax or after-tax. Depending on the type of plan, its participants, and your contributions, you may qualify for one or more tax credits for setting up and contributing to the plan. Additionally, having a qualified retirement plan can improve your workers' financial security.

3. Use an Accountable Plan for Reimbursing Employee Business Expenses

You can reimburse employees for travel expenses, rent, use of their personal vehicle for business, internet access costs when working remotely, and other costs to produce tax savings. Rent payments, including advance rental income treated as unearned revenue, can also be reimbursed. The business gets to deduct the expenses to the extent otherwise allowed, but employees are not taxed on the reimbursements. These reimbursements are not subject to employment taxes. IRS Publication 463 describes accountable plans and their use.

4. Review Your Business Structure

How you have set up your business under state law, such as a limited liability company or a corporation, affects the tax treatment of income and expenses for the business and owners. Changes can be made when desirable to achieve both business and tax results, such as lower profit tax rates. A sole proprietorship might incorporate to give the owner personal liability protection and the opportunity to have income tax withholding from a salary, which can relieve the owner of making estimated tax payments.

5. Consider Health Insurance and Dependent Care Options for Employees

The payment of premiums for employees in a group health plan is deductible or may even qualify for a tax credit. Instead of a group plan, consider making tax-deductible reimbursements to employees under various health reimbursement arrangements (HRAs). If it fits your company, establish a Section 125 benefit plan, allowing employees to pay medical, dental, vision, and other expenses up to an annual limit with pre-tax dollars. A similar plan can be set up to cover dependent care costs up to a set limit. A Section 125 flexible spending account (FSA) saves employees and employers FICA taxes (not applicable for PEOs) that would otherwise be due on wages contributed to the accounts, plus employees may save federal, state, and local income taxes.

6. Review Post-Year-End Tax Elections

Just because the year has ended does not mean tax savings opportunities have ended. A business that purchases equipment has several choices on how to write off the cost on the business tax return; the deduction must be made when the return is filed. The cost of business driving can be deducted using the actual costs involved or relying on an IRS-set rate.

7. Hire a Tax Professional for Expert Advice

If you don't already use the services of an experienced tax preparer (one who keeps abreast of complex and fluid tax laws), it's a good idea to find one. The cost of tax-deductible professional fees may be modest compared to the tax savings you may reap and the tax traps you may avoid. Having a tax professional on your side can provide reassurance and confidence in your tax planning.

8. Make Sure Recordkeeping Is Accurate

While most business expenses are deductible or can generate a tax credit, you may miss out on legitimate expense write-offs without accurate recordkeeping. Good books and records are essential, as no deduction can be claimed for travel expenses or charitable contributions without the required substantiation. This practice ensures you can defend your write-offs if the IRS questions them.

9. Invest in New Assets Before Year-End

Investing in new assets before year-end is a smart way to reduce your taxable income. New assets are recorded in an asset account, which tracks payments made in advance and their movement between asset accounts and expenses over time. As a deferred revenue component, advance payments are recorded as a liability until the corresponding service or product is delivered. By purchasing equipment, machinery, or other assets just before the fiscal year closes, you can benefit from immediate or bonus depreciation, allowing a more significant portion of the asset's cost to be deducted this year. This strategy lowers your overall tax bill and helps your business prepare for growth with new tools and technology.

Before making these purchases, consider your cash flow and ensure the assets align with your business needs. Spending wisely on necessary upgrades can maximize tax savings without straining resources. Consulting a tax advisor can clarify how bonus depreciation accounting rules apply and help you maximize this tax-saving opportunity.

10. Offer Employee Benefit Programs To Boost Savings

Employee benefit programs, such as health insurance, retirement plans, and dependent care assistance, are not just a way to support your staff. They also offer a straightforward method for small businesses to reduce their taxable income. Health insurance and retirement plan contributions are tax-deductible, which can significantly lower your business's overall tax liability. These benefits also play an essential role in attracting and retaining employees, creating a more appealing workplace.

Implementing these programs also encourages long-term savings. For example, contributions to retirement plans like a 401(k) or SEP-IRA provide tax advantages, while dependent care programs allow employees to use pre-tax dollars, reducing their taxable income. These strategies not only cut your tax bill but also strengthen your team. A tax professional can help you maximize the tax benefits of each program and ensure compliance with relevant laws.

11. Use Tax-Free Loan Options From Your Business

Business owners can access tax-free loans from their companies to boost revenue and liquidity without incurring taxes, as long as they follow IRS guidelines. Properly structuring the loan with clear terms—like an interest rate and repayment schedule—can remain a non-taxable event, offering flexibility to cover personal or business expenses.

To avoid reclassifying the loan as taxable income, keep documentation detailing the loan terms and stick to a realistic repayment schedule. This approach provides financial flexibility without additional tax liability. Consulting a tax advisor can help ensure the loan meets IRS standards and stays tax-free.

12. Maximize Unused Deductions by Carrying Them Forward

Carrying forward unused deductions, such as net operating losses and capital losses, is a powerful way to reduce taxable income in future years. Unearned income, representing funds received for goods or services not yet delivered, is classified as a liability in accounting and must be managed accurately to maintain financial health and reduce cash flow issues.

These income-related deductions affect the income statement by gradually being recognized as they offset profits, reducing taxable income over time. By carefully tracking these deductions, you can take advantage of tax rules that allow losses from one year to offset profits in another, effectively lowering your tax bill when your business is more profitable. Net operating losses, for example, can offset income in future profitable years, providing significant tax savings when your business grows or faces higher taxable income.

It's essential to keep accurate records and work with a tax advisor to ensure you're maximizing these carryforwards correctly. Understanding when and how much of your unused deductions can be applied each year can help you plan for more consistent tax savings over time. This strategy not only smooths out tax liabilities but also cushions against volatile income years, helping your business maintain stronger financial health in the long run.

13. Defer Income To Lower Next Year's Tax Bill Strategically

Deferring income to the next tax year is a strategic way for businesses to manage taxable income, particularly if you expect to be in a lower tax bracket in the coming year. Unearned or deferred revenue is recorded as a liability on the balance sheet and recognized as income only when the corresponding services or products are provided. By delaying invoicing or postponing receipt of income until after the new year, you can effectively reduce this year's taxable income, potentially lowering your current tax bill. This approach is beneficial for businesses experiencing fluctuating income or anticipating changes in tax rates.

To make the most of income deferral, it's important to plan carefully and ensure that deferring doesn't disrupt cash flow or business operations. Working with a tax advisor can help you assess whether deferring income aligns with your financial goals and forecasted tax obligations. This strategy can provide immediate tax relief while using deferred revenue and giving your business greater flexibility in managing its income across tax years.

14. Hire Family Members To Optimize Tax Savings

Hiring family members, like spouses or children, is a practical way to reduce your business's taxable income. Wages paid to family members are recorded in a liability account until they are paid out. Wages paid to family members are deductible business expenses, which lowers the amount of income subject to tax. Additionally, income earned by family members may be taxed at a lower rate, leading to further savings. This approach allows family members to gain work experience while contributing to the business's success.

This strategy also opens opportunities for retirement and education savings. Earnings can fund retirement accounts, such as an IRA or 401(k), or go toward a 529 plan for education expenses, providing valuable tax advantages. To follow IRS rules, family members must do legitimate work and receive fair wages. This straightforward method can optimize your tax savings while supporting your family's financial goals.

Tax Law Changes for 2025

While you may be focused on preparing your 2024 return, many people will want to understand tax changes that have occurred as a result of legislation and how this could impact their 2025 returns that are filed in 2026 as well as 2025 estimated taxes (the first installment of which is due April 15, 2025). A few notable items include the following:

• Inflation adjustments: Income tax brackets, eligibility for certain tax deductions and credits, and the standard deduction have been adjusted to reflect inflation. This means that the standard deduction on the 2025 return is:
  • $30,000 for married couples filing jointly and surviving spouses
  • $15,000 for individual taxpayers and married individuals filing separately
  • $22,500 for taxpayers filing as head of household
  • An additional standard deduction amount is for those 65 and older, and another is for the blind
• Green energy actions: If you purchase a new or used plug-in electric or fuel cell vehicle from a dealer in 2025 and qualify for a tax credit, you can "sell" this credit to the dealer, reducing the vehicle's upfront cost by up to 60%. This substantial reduction makes it easier for small businesses to invest in sustainable transportation options while taking advantage of available green energy tax benefits. This approach aligns with sustainability goals and provides immediate cost savings on energy-efficient vehicles.
• Retirement plan changes: SECURE Act 2.0 made several changes taking effect in 2025. For 401(k), 403(b), and governmental 457(b) plans, employers may offer higher catch-up contributions beginning in 2025 for those participants turning 60, 61, 62, or 63. For 2025, the regular catch-up contribution limit for participants under 60 is $7,500, and the catch-up limit for those aged 60 to 63 is $11,250. If an employer established a 401(k) or 403(b) plan after December 28, 2022, they may need to start automatically enrolling eligible employees in 2025. Also, more part-time workers may be able to defer to their workplace retirement plans in 2025, broadening participation.

How Can Business Owners Help Employees Save on Taxes?

Employers want to help their employees in every way possible, including assistance with tax savings. Consider assisting workers to reduce what they owe the IRS throughout the year by:

• Adopting automatic enrollment for 401(k) plans. Their pre-tax contributions reduce reportable income, which means they have a potentially lower income tax bill. Employers may be eligible for a tax credit for using this plan arrangement.
• Offering deferred compensation arrangements. They enable employees to postpone the receipt of bonuses or other designated amounts—and the income taxes owed to them—until retirement.
• Reminding employees to use up flexible spending account funds (FSA). These accounts let employees set aside pre-tax money to offset healthcare or childcare expenses. As an employer, you can opt for the IRS-permitted health FSA grace period, allowing workers to spend their 2024 account balances up to March 15, 2025, for eligible expenses within the grace period, not in 2024. Alternatively, you can offer a limited healthcare FSA carryover of unused amounts from 2024 to 2025.

Plan for Ways To Save on Taxes for Small Businesses in 2025

Tax planning is a year-round activity that will pay off when you file your business tax return. Fortunately, the start of the year is a great time to begin implementing the many small business tax strategies available. Tax changes that became effective on January 1, 2025, can mean even more significant business tax savings. Work with a tax services expert to help identify and maximize money-saving opportunities.