7 tax tips for small business owners

Small business owners are often looking for ways to minimize their company’s tax liability. “This year, the new legislation dubbed “One Big Beautiful Bill Act” (or OBBBA) creates a range of important opportunities for owners to deduct expenses,” says accountant Vinay Navani of WilkinGuttenplan (see tip 1). Finding savings elsewhere may mean evaluating the company’s current financial performance and adjusting its tax strategy accordingly, taking advantage of favorable tax pass-through provisions or setting up a retirement plan for its owners and their employees.

Whatever the situation, year-end tax decisions could have a significant impact on a business’s tax picture now and for years to come. While working with a tax advisor, business owners should consider whether the seven strategies below could help.

1. Consider a host of new business expense deductions

For business owners, the biggest changes coming from the OBBBA, signed into law on July 4, 2025, include a series of new or enhanced deductions for new equipment, structures, research and development and more, Navani says. For example:

Equipment purchases

Property acquired or placed in service on or after January 19, 2025 is now eligible for 100% expensing, known as the bonus depreciation deduction, up from 60% in 2024. “If a manufacturing business is looking to expand a product line or a dentist is in need of new chairs, and the business is looking for deductions in 2025, now could be a good time to move forward,” Navani says.

New structures

To promote manufacturing and production, the OBBBA allows for a full deduction for the costs of new factories and structures used for manufacturing. “Normally, if a business is putting up a building, it must be capitalized and depreciated over many years,” says Navani. “Now, the business can basically expense the whole thing.” Navani says. Construction must begin between January 20, 2025 and the end of 2028, with property placed in service before 2031. And no part of the structures can be used for offices or other non-manufacturing activities.

Research and development (R&D)

The OBBBA allows immediate deductions for domestic R&D expenses incurred from the start of 2025 moving forward. There’s a special provision enabling small businesses to expense R&D costs retroactively to 2022.

Among other new provisions, the OBBBA liberalizes business interest deduction rules, reinstating earnings before interest, taxes, depreciation, and amortization when calculating interest that can be deducted in a taxable year. Another provision raises the limits on Section 179 expensing for certain depreciable business assets.

Each of these deductions is subject to complex rules and restrictions. And keep in mind that many states don’t follow federal fixed asset deduction rules, so a business’s income for state tax purposes could be higher than income for federal purposes, Navani advises. Be sure to consult a tax advisor before taking action.

2. If it’s been a strong year, consider the ability to defer revenue recognition and accelerate expenses

“The tax rules that govern the correct year to report income and deductions can be complex and businesses should be sure to coordinate their strategy with a certified public accountant well in advance of year end,” Navani says. Within those rules, if a company operates on a cash (not accrual) basis for tax purposes, and one of the following applies:

• If a business has had an especially strong year, and it expects profits to be high this year, consider if it may be able to defer revenue recognition to the following year (depending on when it receives cash payment), and increase this year’s expenses by paying some of the following year’s costs in advance, subject to certain limitations, Navani advises.
  
  
• If profits seem likely to be lower this year, think about accelerating cash collection before December 31, if possible, and delaying paying expenses until after the following year, if feasible. Income realized this year may be taxed at a lower marginal income tax rate – and deductions may be more valuable if income is higher in the following year. “If a business expects a net operating loss this year, keep in mind that it may be able to carry that loss forward to offset certain income in future years, subject to limitations, and potentially lower taxes then," Navani suggests.

3. Making gifts to family

“For many business owners, the business is not just their largest asset, it’s the one that’s growing fastest in value each year,” Navani says.  As such, it’s important to carefully consider how and when to begin transferring that asset to beneficiaries. The OBBBA added some clarity to the planning process by making permanent the high gift and estate tax exemptions first put in place under the 2017 Tax Cuts and Jobs Act. The exemption will rise to $15 million for individuals and $30 million for couples in 2026, adjusted annually for inflation.

Businesses go through up and down cycles that may affect their value. “Gifting shares when the value is temporarily down, could help move more of the business out of its estate without triggering taxes,” Navani suggests. Depending on the children’s ages, your vision for the business, and other factors, you have plenty of options on how to structure those gifts. For example, gifting non-voting shares to younger beneficiaries could help move assets out of the estate without giving children management authority before they’re ready. Speak with a tax advisor soon about which approaches might make sense for the business and its family.

If a business owner’s giving includes charitable contributions from its business, a provision in the OBBBA could influence the timing of gifts. Starting in 2026, corporations may only deduct gifts in excess of 1% of their taxable income. “If the business owner is planning to make gifts soon, consider doing so before the end of 2025 to claim the full deduction, Navani suggests. A similar but smaller (.5%) floor applies to individual taxpayers who itemize. For pass-through businesses that itemize, the same logic applies. Consider making gifts in 2025. Of course, taxes are just one consideration when donating, so be sure to consult a tax team before making any decisions.

4. Determine whether the business may qualify for different tax treatment

Many small business owners can deduct 20% of qualified business income in calculating their federal income taxes. That deduction, a legacy of the 2017 Tax Cuts and Jobs Act, generally applies to “pass-through” businesses (when owners file tax returns and pay income taxes on business income themselves, rather than the business itself filing tax returns and paying income tax). The deduction was made permanent under the OBBBA and can be a powerful incentive to operate as a pass-through business. “Still, the choice is not automatic, and requires some planning,” Navani says. Certain service businesses, such as legal, medical or accounting practices, generally may not take advantage of such deductions.

At the same time, the OBBBA added a potential incentive for operating as a C corporation rather than a pass-through business, by expanding qualified small business stock (QSBS) benefits. Under the old rules, sellers could claim a 100% capital gains exclusion for selling up to $10 million in stock that they’ve held for more than five years. The expanded rules raise the limit for QSBS acquired after July 4, 2025, to $15 million for 2026 (adjusted for inflation) and permit a 50% gain exclusion for stock held for three years and 75% for stock held for four years. Moreover, QSBS rules now apply to small businesses with total assets of up to $75 million, compared with $50 million previously. “If I'm starting a business, I want to look hard at whether I want to be a C corporation or a pass through, especially if I could reasonably see myself selling my business in three-plus years,” Navani says.

A tax advisor can help a business owner consider these and other variables to determine the business status best suited to them.

5. Create a smart plan for paying taxes

The sooner business owners have an idea of the business’s general outlook for the tax year, the better prepared they are to prevent cash flow disruptions — either by putting money aside or arranging for a line of credit to pay the IRS. “Many businesses have faced higher costs due to inflation,” Navani says. “Thinking ahead about what they’ll owe next April could prevent them from facing liquidity problems at tax time.”

One possibility to consider if the qualifications are met: estimated taxes can often be based on the prior year, so if the business had a down year, paying a relatively low amount of estimated tax for this year to preserve cash flow is an option. Make sure to pay at least 90% of the tax for the current year, or 100% of the tax shown on the return for the prior year, whichever is smaller, to avoid any penalties. If the business owner’s adjusted gross income for the previous year was $150,000, or $75,000 if married filing separately, it’s 110% of the tax shown on the prior year’s return, not 100%. “Keep in mind that this rule applies to individual taxpayers and thus owners of pass-through entities (PTE),” Navani notes. “C corporations have different rules to calculate estimated taxes.” Of course, the full remaining amount would be due by the IRS tax deadline in 2026. Business owners should work with an accountant to estimate the tax due, so they can invest the difference and be potentially better prepared for the eventual payment.

6. See whether pass-through entity status could help reduce taxes

Generally, a qualified PTE, such as an S corporation, partnership, or an LLC taxed as either of the two, can make an election to pay a PTE tax at the entity level on behalf of the owner’s/partner’s share of their qualified net income from the entity.

If the election is made and the PTE tax is paid, this will generate a tax deduction on the entity’s federal return, thereby reducing the taxable income reported on the owners/partners federal Schedule K-1. Here’s an example of how it can work: If an S corporation has $1 million worth of income and the ultimate state tax is $60,000, that amount is deemed an expense, so that the S corporation’s income for federal tax purposes becomes $940,000. Thus, the business owners are able to receive a tax deduction and ultimately pay less federal taxes due to taxes being assessed against a lower amount, thanks to the PTE benefit. Additionally, the PTE tax paid will generate a tax credit to owners/partners that elect to participate in the PTE election and thus are neutral with respect to state taxes. 

7. Set up — or add to — a retirement savings plan

“Attracting workers continues to be a problem for small business owners,” Navani says. “A retirement plan could help make a company more attractive to employees while enabling the owner to save money.” Small business owners generally have several options for employer-sponsored retirement savings plans, including SIMPLE IRA, SEP IRA, 401(k) and profit-sharing plans. The plans differ in eligibility requirements, amount the employer and employee can contribute, the investment options available, and the ease and expense of setting them up, among other factors. Small business owners may also set up personal IRA accounts for themselves.

With any plan, contributions the business owners make to themselves and their employees may be tax-deductible depending on the type of plan. Small businesses may also get a tax credit to help defray the cost of starting certain retirement plans. For calendar year taxpayers, they are generally given until the due date, including extensions, of the small business’s tax return to contribute funds to a retirement plan. But some types of plans must be established before the end of the tax year, or earlier during the tax year, to get the tax deduction. It’s recommended to ask a tax advisor. To learn how much one can contribute to a retirement plan, refer to our annual contribution limits guide.