Smart tax planning is one of the most effective ways to strengthen your business finances. Whether you’ve just launched your first venture or have been running your company for years, understanding key tax planning strategies can help you reduce liabilities, improve cash flow and reinvest more of your earnings into growth.
With the passage of the One Big Beautiful Bill Act (OBBBA), small businesses now have access to permanently extended tax cuts, new deductions, expanded income thresholds and enhanced savings opportunities. Here’s how to make the most of these updates and build a proactive tax plan for 2025.
1. Choose the Right Business Structure
Your business structure determines how your income is taxed and what deductions you can claim. Each entity type comes with its own unique benefits:
- Sole Proprietorship: Simple to establish, but profits are taxed as personal income, meaning you pay both income and self-employment tax.
- Limited Liability Company (LLC): Offers liability protection and flexibility. LLCs can elect to be taxed as sole proprietors, partnerships or S corporations.
- S Corporation (S corp): Allows owners to split earnings between salary and distributions, potentially lowering self-employment taxes.
- C Corporation (C corp): Subject to corporate tax rates, but businesses may benefit from new OBBBA deductions and slightly reduced corporate tax brackets.
Pro Tip: If your LLC’s annual profit exceeds $100,000, electing S corp status could reduce your self-employment tax burden by several thousand dollars. Just be sure to pay yourself a reasonable salary and meet IRS requirements.
Before changing your structure, consult with a tax professional to confirm it aligns with your income goals and long-term business strategy.
2. Maximize Business Deductions & Credits
The foundation of every strong tax strategy lies in maximizing your deductions and credits. Deductions lower your taxable income, while credits reduce your tax bill dollar for dollar—often yielding even greater savings.
Common Deductible Expenses
Businesses can generally deduct ordinary and necessary costs related to operations, such as:
- Rent and utilities: Office rent, electricity, water, gas, internet and phone services used for business.
- Business insurance: Premiums for general liability, property, workers’ compensation, professional liability or cyber coverage.
- Employee compensation: Wages, salaries, bonuses and employer contributions to health insurance or retirement plans.
- Independent contractor payments: Fees paid to freelancers, consultants or service providers. (Remember to issue Form 1099-NEC for any vendor paid $600 or more.)
- Office supplies and equipment: Everyday essentials like pens, printer ink, paper and technology used exclusively for business.
- Advertising and marketing: Costs for digital ads, website design, printed materials, sponsorships and public relations efforts.
Common Small Business Tax Credits
- Research & Development (R&D) Credit: For businesses developing new products, software or processes.
- Work Opportunity Tax Credit (WOTC): For hiring employees from targeted groups facing employment barriers.
- Small Business Health Care Tax Credit: For companies providing qualifying health insurance to employees.
- Disabled Access Credit: For making your business more accessible to individuals with disabilities.
- Energy Efficiency Incentives: For businesses installing certain renewable energy systems or energy-saving upgrades, available for a limited time as OBBBA begins phasing them out in 2025.
Pro Tip: Keep digital records and categorize expenses monthly using accounting software or spreadsheets. Staying organized makes it easier to claim deductions, capture credits and streamline tax filing.
3. Take Advantage of the Qualified Business Income (QBI) Deduction
The Qualified Business Income (QBI) deduction, also known as the 20% pass-through deduction, remains one of the most valuable benefits for small business owners. It allows eligible sole proprietors, partnerships and S corp owners to deduct up to 20% of qualified business income from taxable income.
Key OBBBA Updates
- The 20% deduction is now permanent.
- A minimum $400 deduction applies to qualifying businesses with at least $1,000 of active income starting in 2026
- Also for 2026, phase-in thresholds, the range of income over which limitations on the deduction begin to apply, has increased from $100,000 to $150,000 (joint) and from $50,000 to $75,000 (single, hoh), allowing more small business owners to qualify.
Example: If your consulting firm earns $120,000 in profit, you could deduct up to $24,000 (20%) through the QBI deduction—assuming you meet all eligibility criteria.
Because the deduction phases out at higher income levels and excludes some service industries, working with a qualified advisor is essential to maximize the benefit.
4. Leverage Section 179 and Bonus Depreciation
When you invest in equipment, vehicles or technology, you can typically recover costs through depreciation. The OBBBA expanded options for faster, upfront savings.
Section 179 Deduction
Deduct the full cost of qualifying property (up to the annual limit) in the year it’s placed in service. Eligible assets include machinery, computers, software, office furniture and vehicles.
For 2025, the Section 179 expense limit increases to $2.5 million, reduced if total qualifying purchase costs exceed $4 million.
Bonus Depreciation
If purchases exceed Section 179 limits—or you want to preserve some deductions for future years—bonus depreciation allows an additional immediate deduction for new and used assets placed in service between January 19, 2025, and January 1, 2030.
Example: Suppose you purchase two new delivery vans for $100,000 total in 2025. You could:
1. Deduct the full $100,000 under Section 179 (if under the cap), or
2. Use 100% bonus depreciation to claim the same deduction in one year.
Either way, you reduce taxable income by $100,000—potentially saving $20,000-$30,000 in taxes, depending on your federal and state tax rates.
Timing matters: Place assets in service before December 31, 2025, to secure current-year tax deductions.
5. Contribute to a Retirement Plan
Business owners can reduce taxable income and build personal wealth through retirement contributions. The OBBBA increased contribution limits for several small business retirement plans.
Solo 401(k)
Designed for self-employed individuals or business owners with no employees other than a spouse. It allows you to contribute in two ways—as both employee and employer.
- Employee contribution limit (2025): Up to $23,500, plus $7,500 catch-up if age 50 or older.
- Employer contribution limit: Up to 25% of net self-employment income.
- Combined maximum: $70,000 (or $77,500 with catch-up).
Solo 401(k)s also permit Roth (after-tax) contributions if set up accordingly.
Simplified Employee Pension (SEP) IRA
A SEP IRA is another strong option for small businesses, especially those with employees. Employers can contribute up to 25% of income (same dollar limit as the Solo 401(k)). SEP IRAs are easy to set up with minimal administration requirements, but only employers contribute. Contributions must be made equally for all eligible employees.
SIMPLE IRA
A SIMPLE IRA is ideal for businesses with up to 100 employees that want to offer a retirement benefit without the complexity of a 401(k).
- Employee contribution limit (2025): Up to $16,000, plus a $3,500 catch-up if age 50 or older.
- Employer contribution options: Match employee contributions dollar-for-dollar up to 3% of compensation or make a 2% non-elective contribution for all eligible employees.
Each plan has unique eligibility, contribution and administrative rules, so it’s important to select the one that best aligns with your business structure, cash flow and long-term goals.
Timing matters: These plans should be set up before year-end to qualify for current-year deductions.
6. Employ Family Members Strategically
Hiring your spouse or children to perform legitimate work can shift income to lower tax brackets and help your family save overall.
Example: Hiring your child to handle social media, administrative tasks or assist with deliveries makes their wages deductible as a business expense. Because the standard deduction increased under OBBBA, your child may owe little or no federal income tax on that income.
Make sure wages are reasonable, document job duties and properly handle payroll taxes to stay compliant.
7. Deduct Health Insurance Premiums and Explore HSAs
Self-employed individuals can generally deduct 100% of their health insurance premiums for themselves, their spouse and dependents, including health, dental, vision and long-term care insurance coverage.
Additionally, Health Savings Accounts (HSAs) remain one of the most tax-efficient savings tools available. Contributions are pretax, earnings grow tax-free and withdrawals for qualified medical expenses are tax-exempt.
- 2025 HSA contribution limits: $4,300 for self-only coverage and $8,550 for family coverage, plus $1,000 catch-up for individuals aged 55 and older.
The OBBBA raised annual HSA limits, giving business owners more flexibility to manage healthcare costs while lowering taxable income.
8. Review Quarterly Estimated Tax Payments
Many entrepreneurs face hefty tax bills at year-end simply because they didn’t adjust quarterly estimated payments as income changed.
To stay compliant and avoid penalties:
- Recalculate estimates every quarter, especially if your business has variable income.
- Factor in OBBBA’s adjusted tax brackets and new deductions you’re claiming.
- Use IRS Form 1040-ES or accounting software to automate reminders and calculations.
Pro Tip: If your Q1 earnings were lower but Q2 spiked, increase your next quarterly payment to avoid underpayment penalties later.
9. Keep Accurate, Real-Time Records
Accurate recordkeeping underpins every effective tax plan. Accounting platforms such as QuickBooks, Xero and FreshBooks help track income, categorize expenses and store digital receipts for quick reference.
Because the IRS is auditing electronic payment systems (Venmo, PayPal, etc.) more frequently, it’s important to separate personal and business transactions clearly.
Keep organized files for:
- Income records: Invoices, sales receipts, 1099s and bank statements.
- Expense documentation: Receipts, invoices, credit card statements and proof of electronic payments.
- Payroll records: W-2s, 1099-NECs, employee time sheets and payroll tax filings.
- Asset and depreciation records: Purchase receipts, titles and depreciation schedules for property and equipment.
- Mileage and travel logs: Trip dates, miles driven and business purpose.
- Retirement and benefits documentation: Contribution confirmations, plan setup forms and end-of-year summaries.
- Tax filings: Prior-year returns, estimated-payment receipts and IRS correspondence.
Pro Tip: Schedule a monthly reconciliation to ensure your books stay accurate and ready for filing.
10. Work with a Tax Advisor Year-Round
Tax laws evolve constantly—and OBBBA introduced sweeping changes this year. Partnering with a trusted advisor early allows you to adjust strategies before deadlines hit.
A qualified tax professional can:
- Identify new credits and deductions available under OBBBA.
- Analyze cash flow to plan purchases and write-offs.
- Optimize compensation for S corp owners.
- Develop long-term strategies that support your growth goals.
Tax planning isn’t just about filing—it’s about forecasting, adjusting and maximizing your return throughout the year.
Take Action on Your Tax Strategy
Effective tax planning is a year-round effort. By combining time-tested strategies—like maximizing deductions, contributing to retirement plans and maintaining organized records—with the new opportunities introduced under OBBBA, you can reduce your tax burden, strengthen cash flow and position your business for lasting success.
Ready to plan smarter?
Contact an LTax Team Member today to create a customized tax strategy aligned with your goals.
LEGAL OR TAX: The information herein is not legal, such as trust or estate planning, advice, or tax advice. Any such information is provided for illustrative purposes only and must not be relied upon without the benefit of the advice of your lawyer and/or tax professional. Lido specifically disclaims any liability from any reliance on such information. Lido is not a legal service provider or tax professional and does not offer legal or tax advice. Should you desire to obtain tax or legal services or advice, you must enter into your own, independent engagement agreement with a licensed attorney or tax professional.