For business owners, navigating the complexities of taxes can feel like steering through a storm—especially with the recent passage of the One Big Beautiful Bill Act (OBBBA). This landmark legislation permanently extends many provisions from the 2017 Tax Cuts and Jobs Act (TCJA), averting a potential $4 trillion tax hike while introducing new tax planning opportunities and nuances for business owners.
From expanded deductions to revised capital gains exclusions, the bill reshapes the landscape, making proactive tax planning for small business owners more essential than ever.
Whether you’re a sole proprietor, a partnership, an S corporation, or a C corporation, effective tax planning isn’t just about compliance; it’s a vital tool for financial security, managing cash flow, and providing long-term growth.
This list presents 12 practical small business tax planning strategies to help you maximize these updates and allow your business to thrive under the new rules. But if you want personalized tips for your business, consider consulting an ARQ Wealth tax advisor by calling (480) 214-9572.
1. Maximize the Enhanced Qualified Business Income (QBI) Deduction for Pass-Through Income
One of the crown jewels of the OBBBA is the permanent extension—and slight expansion—of the Section 199A QBI deduction. The deduction for qualified pass-through business income remains at 20%. This applies to sole proprietorships, partnerships, S corporations, and LLCs, potentially lowering your effective tax rate on business profits.
Year-End Tax Planning Action: Review your business structure during year-end tax planning. If you’re in a service-based industry (like consulting or law), the bill raises phase-out thresholds, allowing more owners to fully qualify.
For example, single filers earning more than $194,300 now see phase-outs starting at $75,000 (up from $50,000), making this deduction accessible to a broader range of small business owners. The phase-outs for married filers earning over $394,600 increase to $150,000.
Defer income to 2026 if possible or accelerate expenses to boost your QBI base. This strategy alone could save thousands, freeing up capital for reinvestment.
2. Accelerate Asset Purchases with Permanent 100% Bonus Depreciation
Gone are the days of phasing out bonus depreciation; the OBBBA reinstates it and makes 100% bonus depreciation permanent for qualified property placed in service after January 19, 2025. This includes machinery, vehicles, and equipment—ideal for business owners looking to upgrade their operations.
Year-End Tax Planning Action: Time your purchases carefully. If you’re considering new tech or fleet vehicles, buy before December 31 to claim the full deduction in 2025 and immediately lower your taxable income. For greater flexibility, combine this with Section 179 expensing, now increased to $1.5 million with phase-outs starting at $3.75 million. Small businesses earning under $31 million can also take advantage of bonus benefits, such as immediate R&D expensing without amortization.
This tip is a game-changer for cash-strapped owners, transforming capital investments into tax shields and accelerating your journey to financial stability.
3. Leverage the Expanded Qualified Small Business Stock (QSBS) Exclusion for Exit Planning
The bill boosts the QSBS exclusion cap from $10 million to $15 million for stock acquired after July 4, 2025, and raises the “small business” asset threshold from $50 million to $75 million. Hold for over five years, and you could exclude 100% of gains—up to 75% after four years.
Year-End Tax Planning Action: If you’re launching or restructuring in 2025, choose C corp status to qualify, especially if you’re aiming for a VC-backed exit. Review existing holdings: shares issued before July follow legacy rules, but new issuances can lead to significant savings. This strategy is especially effective for tech startups or family businesses planning succession.
For many small business owners, this isn’t just a deduction—it’s a wealth-building accelerator that shores up your legacy and retirement with minimal tax drag.
4. Utilize the Temporary SALT Deduction Increase for State Tax Relief
The OBBBA temporarily increases the state and local tax (SALT) deduction cap from $10,000 to $40,000 (inflation-adjusted) through 2029, offering a benefit for owners in high-tax states like California or New York. Pass-through entity workarounds stay in place, allowing entity-level payments to bypass individual caps.
Year-End Tax Planning Action: During year-end planning, bunch state tax payments into 2025 to take advantage of the higher cap.
If your business pays substantial property or payroll taxes, consider electing S corp or partnership status to shift deductions. It would be essential to run scenarios: A $40,000 deduction could save $9,200 at the 23% rate.
This provision eases the burden on regional operations, supporting fair financial security across different areas.
5. Optimize R&D Expenses with Immediate Expensing for Innovation-Driven Businesses
Innovation just became more affordable: Starting in 2025, all businesses can immediately deduct domestic R&D expenses—eliminating the five-year amortization requirement for larger companies. Small businesses (with under $31 million in receipts) can even retroactively claim the deduction for 2022-2024.
Year-End Tax Planning Action: Track all qualifying activities, from software development to process improvements, and concentrate expenses in Q4. This tax strategy for business owners transforms R&D into a highly deductible area, especially for manufacturing or tech sectors. By leveraging growth deductions, you’re helping your business gain competitive advantages and maintain profitability.
6. Boost Employee Benefits with Expanded Child Care and Retirement Credits
The OBBBA enhances employer-provided childcare credits: Rates increase to 40% (50% for small businesses), caps are raised to $500,000 ($600,000 for receipts under $31 million), and third-party providers are now included.
Year-End Tax Planning Action: Consider offering on-site or subsidized childcare by December to qualify for 2025 credits, which is great for retaining talent.
7. Conduct Comprehensive Year-End Reviews to Time Income and Expenses
With OBBBA’s permanency reducing uncertainty, year-end tax planning should become your annual ritual to determine whether it makes sense to defer income (e.g., invoice in January) and accelerate deductions (e.g., prepay suppliers) to lower 2025 brackets.
Year-End Tax Planning Action: Use tools like QuickBooks for projections, then simulate scenarios under new rules—like the $40,000 SALT. Audit for overlooked credits, including reinstated energy incentives (grandfathered until September 2025). Document everything for audits.
This holistic approach helps ensure compliance while uncovering hidden savings, anchoring your business’s financial security for years ahead.
8. Restructure Debt to Deduct Interest Under Relaxed Limitations
The OBBBA restores a more favorable calculation for the Section 163(j) business interest deduction limitation by permanently reinstating an EBITDA-based measure of adjusted taxable income (ATI)—allowing businesses to add back depreciation, amortization, and depletion when computing the base for the 30% cap (which remains unchanged).
Small businesses (generally those with average annual gross receipts of $31 million or less, adjusted for inflation) continue to be exempt from the limitation.
Year-End Tax Planning Step: Evaluate your current debt and interest expenses in light of the restored EBITDA calculation, which applies for the 2025 tax year and increases deductible interest capacity for many capital-intensive businesses—no refinancing is required to benefit from these changes.
Growing firms can consider leveraging low-rate loans for expansion, as interest will generally provide a stronger tax shield under the more generous ATI rules. Combine this with bonus depreciation (now permanently available at higher levels in many cases) when financing equipment to maximize deductions.
This strategy turns debt into a valuable tax tool, helping to preserve cash flow for reinvestment.
9. Elect Pass-Through Entity Tax (PTET) Payments at the Entity Level
Business owners in high-tax states can now permanently elect PTET payments at the entity level, bypassing the individual SALT cap entirely—even with the temporary $40,000 increase. The credit is now fully refundable for overpayments.
Year-End Tax Planning Action: File the election by March 15, 2026, for 2025 taxes to effectively shift state tax burdens to the business for a dollar-for-dollar federal deduction. This is especially potent for S corps and partnerships in CA, NY, or IL.
This workaround delivers permanent SALT relief, leveling the playing field for regional businesses.
10. Use Charitable Contributions to Offset Gains
Charitable giving in 2025 offers a strong dual advantage: a tax deduction at fair market value (FMV) and the avoidance of capital gains tax on appreciated assets. For businesses holding low-basis stock, real estate, or excess inventory, strategic donations convert potential tax liabilities into immediate deductions—especially valuable during high-income years.
C corporations remain subject to the existing 10% of taxable income limit on charitable deductions, with a new 1% floor introduced under the OBBBA (meaning contributions are deductible only to the extent they exceed 1% of taxable income, effective for tax years beginning after December 31, 2025), while pass-through entities pass the full deduction directly to owners. Consider accelerating significant corporate donations into 2025 to maximize benefits under the current rules without the upcoming floor.
Year-End Tax Planning Action:
- Deduct FMV, avoid capital gains: Contribute long-held securities or property to a 501(c)(3); deduct full market value without recognizing gain. Ideal for publicly traded stock held >1 year.
- C Corp enhanced limit: Deduct up to 10% of taxable income (pre-contribution) for cash or property—carry forward excess 5 years. Inventory donations qualify if used for the care of the ill, needy, or minors.
11. Restructure Compensation with Tax-Efficient Vehicles
For pass-through business owners, the compensation structure is a powerful tool for tax savings—especially since payroll taxes are 15.3% on wages but zero on qualified distributions. By combining salary, deferred plans, and tax-advantaged benefits, owners can lower both current liabilities and lifetime tax burdens while maintaining cash flow and retirement security.
Owner-Only Strategies:
- S Corp Reasonable Salary: Pay yourself a defensible market-rate salary (e.g., $80,000 for a mid-sized operation) subject to payroll taxes; distribute remaining profits as distributions—QBI-eligible and free of self-employment tax. Use salary surveys or RC Reports to justify.
- Deferred Compensation: Set up non-qualified deferred compensation plans (NQDC) to defer bonuses or profit shares into 2026 or later. Income is taxed when received; ideal for owners expecting lower tax brackets in the future or proceeds from a business sale.
- HSAs & HRAs: Maximize Health Savings Accounts ($8,300 family limit in 2025, triple tax-free: pre-tax in, tax-free growth, tax-free medical out). Pair with Section 105 HRAs to reimburse additional health costs (including premiums) for owners and employees.
Example: A business with $200,000 in profit pays the owner a $80,000 salary (payroll tax: $12,240) and $120,000 in distribution (no payroll tax), resulting in savings: $9,180 in self-employment tax—plus full QBI deduction on the distribution.
These strategies require thorough documentation and compliance, but they can provide immediate and long-term benefits.
Final Thoughts: Your Tax Planning Roadmap to Financial Security
The One Big Beautiful Bill Act unlocks a treasure trove of tax planning opportunities for business owners, from permanent deductions to exclusion enhancements. By applying these ten tax strategies, you’ll not only reduce liabilities but also support growth and peace of mind. However, every business is unique—these tips are a starting point, not a substitute for professional advice.
The reality is, no two businesses are alike. A strategy that saves one owner $50,000 might cost another $10,000 in missed opportunities.
That’s why personalized guidance is non-negotiable.
Contact an ARQ Wealth advisor for a complimentary, no-obligation consultation to craft your custom year-end tax planning roadmap. Schedule today!