Year-End Tax Planning Essentials for Business Owners

Year-End Tax Planning Essentials for Business Owners

Authored by Chris Vidler, CFP®, CIMA®

As the year draws to a close, business owners have a valuable opportunity to reduce their tax burden and prepare for filing season. Strategic planning before December 31 can lead to meaningful savings and smoother operations in the new year. This guide covers key actions to consider now, with a special section for Virginia-based businesses.

Review Financials and Forecast Income

Begin by pulling your profit and loss statement and balance sheet to assess year-to-date performance. Look for trends in revenue, expenses, and cash flow. Then, project your income through year-end to estimate your taxable profit.

This forecast helps you decide whether to defer income or accelerate expenses to manage your tax liability. For example, if your income is unusually high this year, you might consider prepaying expenses or making planned purchases before December 31.

💡 Tip: If cash flow allows, consider delaying invoices until January to shift income into the next tax year—especially if you expect lower earnings next year.

Maximize Deductions and Credits

Now is the time to take advantage of every deduction and credit available to your business. Key opportunities include:

• Section 179 and Bonus Depreciation: Deduct the full cost of qualifying equipment and software purchased before year-end.
• Retirement Contributions: Maximize contributions to SEP IRAs, Solo 401(k)s, or defined benefit plans to reduce taxable income.👉 Need help choosing between Roth and pre-tax options? Read our breakdown here.
• Health-Related Deductions: Deduct premiums for self-employed health insurance and contribute to Health Savings Accounts (HSAs).
• New 2025 Tax Breaks: The One Big Beautiful Bill introduced expanded deductions for startup costs, increased limits for business meals, and enhanced credits for hiring and training employees.

💡 Tip: If you’re planning to upgrade equipment or technology, doing so before December 31 may allow you to fully deduct the cost this year under Section 179—helping reduce taxable income while investing in your business’s growth.

Evaluate Business Structure

Your business entity type—LLC, S-Corp, C-Corp, or sole proprietorship—can significantly impact your tax liability. Year-end is a good time to assess whether your current structure is still the most tax-efficient for your goals.

If your business has grown or your income has changed, it may be worth exploring an S-Corp election or restructuring for next year. These decisions can affect how profits are taxed and how you pay yourself.

💡 Tip: Talk to your CPA before year-end if you're considering a change—some elections must be filed early in the new year to apply retroactively.

Employee and Payroll Planning

Year-end is a great time to review employee compensation and benefits. Consider timing bonuses to align with your tax strategy and ensure all payroll filings are accurate and up to date.

If you haven’t already, explore retirement plan options for your team—such as SIMPLE IRAs or 401(k)s—which can offer tax advantages for both the business and employees.

💡 Tip: Offering tax-free fringe benefits like health reimbursements or education assistance can boost employee satisfaction while reducing taxable income.

Estimated Taxes and Cash Flow

Before year-end, confirm that your estimated tax payments align with your actual income. Underpayment can lead to penalties—even if you pay the full amount by the filing deadline.

How to Check for Underpayment

• Review IRS Form 1040-ES or 1120-W to calculate estimated payments based on projected income.
• Use the IRS Online Account to view payment history and current balance.
• Work with your CPA to compare year-to-date income with estimated payments and determine if a final payment is needed before January 15.

Cash Flow Planning for the New Year

• Build a Tax Reserve: Set aside a percentage of monthly revenue in a separate account.
• Review Accounts Receivable: Follow up on outstanding invoices to improve collections.
• Forecast Q1 Needs: Anticipate payroll, vendor payments, and tax deadlines.
• Delay Non-Essential Spending: Preserve cash by postponing discretionary expenses.

💡 Tip: If your income varied significantly this year, ask your CPA about using the annualized income method to calculate estimated taxes more accurately and potentially reduce penalties.

Clean Up Books & Records

Accurate financial records are essential for a smooth tax filing process and for making informed decisions. Before year-end, reconcile your accounts, organize receipts, and ensure all transactions are properly categorized.

Review your profit and loss statement, balance sheet, and general ledger. Look for inconsistencies, missing entries, or duplicate transactions. If you use accounting software, run reports to verify that income and expenses are correctly recorded.

💡 Tip: Schedule a year-end review with your bookkeeper or CPA to catch errors early and avoid delays during tax season.

Also, make sure payroll records, contractor payments (including 1099 tracking), and loan documentation are complete and accessible. Clean records not only reduce stress during filing—they also help you respond confidently if audited.

Virginia-Specific Considerations

Since Concentric Wealth Partners is headquartered in Richmond, many of our clients are fellow business owners across the Commonwealth. Virginia offers several state-level planning opportunities that can enhance your year-end tax strategy.

Pass-Through Entity Tax (PTET) Election

Virginia allows eligible pass-through entities—such as S-Corps and partnerships—to elect to pay state income tax at the entity level. This election can provide a federal tax benefit by allowing the deduction of state taxes that would otherwise be limited under the state and local tax (SALT) cap.

💡 Tip: If your business qualifies, PTET can be a powerful tool to reduce your federal tax liability without changing your overall Virginia tax burden.

Purchasable Virginia Income Tax Credits

Virginia allows individuals and businesses to purchase certain state income tax credits—often at a discount—through approved brokers or directly from credit holders. These credits can be applied to reduce your Virginia income tax liability.

Common examples include:

• Land Preservation Tax Credit
• Historic Rehabilitation Tax Credit
• Low-Income Housing Credit

💡 Tip: These credits are limited and time sensitive. If you're interested, reach out to your advisor early to explore availability and pricing.

Other Virginia Planning Items

• Local Business Taxes: Confirm deadlines for business license renewals and local tax filings.
• Virginia 529 Contributions: Contributions made by December 31 may qualify for up to a $4,000 state tax deduction per account.

Final Thoughts: Work With a Professional

Year-end tax planning is one of the most valuable opportunities business owners have to reduce tax liability and strengthen financial health. But with changing laws, evolving business needs, and tight deadlines, it’s not something you want to navigate alone.

Having a team of trusted advisors—including a CPA and a financial advisor—ensures you’re making informed decisions that align with both your tax strategy and long-term financial goals. Together, they can help you:

• Identify overlooked deductions and credits
• Evaluate your business structure for tax efficiency
• Plan for cash flow and upcoming tax obligations
• Ensure compliance with both federal and state-specific rules like Virginia’s PTET election

💡 Tip: Many strategies must be implemented before December 31—so don’t wait until January to start planning.

At Concentric Wealth Partners, we specialize in helping business owners across Virginia and the Mid-Atlantic region make smart, proactive decisions. If you’d like help reviewing your year-end strategy or preparing for next year, we’re here to support you.

📞 Contact us today to schedule a personalized year-end planning session.

Opinions expressed in the attached article are those of the author and are not necessarily those of Raymond James. All opinions are as of this date and are subject to change without notice. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.