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.
Your business structure determines how your income is taxed and what deductions you can claim. Each entity type comes with its own unique benefits:
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.
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.
Businesses can generally deduct ordinary and necessary costs related to operations, such as:
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.
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
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.
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.
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.
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).
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.
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.
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.
The OBBBA raised annual HSA limits, giving business owners more flexibility to manage healthcare costs while lowering taxable income.
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:
Pro Tip: If your Q1 earnings were lower but Q2 spiked, increase your next quarterly payment to avoid underpayment penalties later.
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:
Pro Tip: Schedule a monthly reconciliation to ensure your books stay accurate and ready for filing.
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:
Tax planning isn’t just about filing—it’s about forecasting, adjusting and maximizing your return throughout the year.
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.