Year-end tax planning checklist: Q4 strategies to lower your 2025 tax bill

Published 15 December 2025

Table of contents

• Why year-end tax planning matters for small businesses
• Timing strategies: Accelerating deductions & deferring income
• Major equipment purchases before December 31
• Maximizing retirement contributions
• Year-end tax planning checklist
• Reviewing estimated tax payments
• Year-end tax planning checklist
• Plan your tax strategy with Xero
• FAQs on year-end tax planning

Key takeaways

• Strategic year-end tax planning in Q4 can significantly reduce your 2025 tax bill through careful timing of income and expenses before the December 31 deadline
• Purchasing qualifying business equipment by year-end allows you to claim Section 179 deduction (up to $1,220,000) or bonus depreciation in 2025 rather than waiting until 2026
• Maximizing retirement contributions to SEP IRA, Solo 401(k), or other qualified plans before year-end reduces taxable income while building retirement savings
• Calculate your Q4 estimated tax payment carefully to meet safe harbor requirements (90% of current year or 100%/110% of prior year) and avoid underpayment penalties

Why year-end tax planning matters for small businesses

You have to pay taxes – but the right strategy can help minimize your tax liability. Getting ready to file taxes isn't just about gathering paperwork and reviewing tax deductions; it's about understanding updates to the tax law, looking over your finances for the year so far, and leveraging Q4 tax strategies to help you save.

So what can you do? Where should you start? The right advisor is critical. An experienced CPA or knowledgeable tax preparer can help you with year-end tax planning for small businesses, and in the meantime, here are some ideas to get started.

To learn more, check out these IRS tax tips.

Timing strategies: Accelerating deductions & deferring income

If you use cash accounting, consider timing deductions and income to optimize this year or next year's tax situation. If your income is high this year, you may be able to lower it by deferring income to next year and accelerating some of your deductions. But if income is relatively low this year and you expect more next year, do the reverse – get the income on the books for 2025 and delay paying any expenses possible until 2026.

Deferring income can be as simple as sending an invoice a bit later than usual or stalling collections for accounts receivable. Accelerating deductions is just a fancy way of saying "prepay expenses," but you need to be aware of the rules.

The IRS only lets you deduct expenses paid for "rights or benefits" you'll use by the end of the tax year or within the next 12 months. For instance, if you prepay for a 36-month insurance policy at the end of the year, you can only deduct the portion of the expense related to the current year. But if you pay for a 12-month insurance policy, you can deduct the full payment as it qualifies under the 12-month rule. Businesses can't deduct prepaid rent.

What can you prepay? Consider launching a new advertising campaign, hiring a business coach, or making any big or small purchases that you've been putting off.

Major equipment purchases before December 31

During year-end tax planning, small businesses should consider investing in new equipment – that's especially true if you want to offset high earnings for the current tax year. The equipment must be put into use by the end of the year – so putting in an order on December 31st doesn't cut it. You need the equipment purchased, delivered, and in use by the end of the year.

Then, you've got a few different options – you can depreciate the expense over time. That lets you deduct a portion of the asset's cost this year and defers the rest to future years. If you want the maximum value for the deduction right now, you've got two major options: Section 179 or bonus depreciation.

Section 179 lets you write off the full cost of most capital assets in the year of purchase, but there are dollar limits on certain types of vehicles. For tax year 2025, the maximum Section 179 deduction is $1.22 million. That limit is reduced dollar for dollar if the cost of Section 179 property placed into service exceeds $3.05 million – for example, if you put in $3.55 million of Section 179 equipment into service, you must reduce your maximum deduction by $500,000, limiting you to a $720,000 deduction. Once you pass $4.27 million in Section 179 purchases, you no longer qualify for this deduction.

Bonus depreciation of 100% was made permanent by the One Big Beautiful Bill (OBBB), passed in July 2025 and retroactively applied to equipment purchased and placed in service by January 19, 2025. There are no limits, and you can generate a business loss with bonus depreciation, which is not available under the Section 179 rules.

Most new or used business equipment qualifies for Section 179 or bonus depreciation – but you can't use either of these deductions on commercial real estate.

Maximizing retirement contributions

Contributing to a tax-deferred retirement account reduces your taxable income, and there are all kinds of options for small business owners. You can contribute up to $7000 per year into an IRA ($8000 if over age 50), but if you or your spouse has a retirement account through your employer, you need to meet income limits to receive the full tax deduction of your contribution.

There are also all kinds of special retirement plans available to small businesses, including SIMPLE IRAs and SEPs. These have much higher limits and are relatively easy to administer. But the rules are complicated – you may need to offer these plans to all your employees or have standardized offerings if you own more than one business. Before just opening one of these plans, talk with a specialist.

The great thing about most retirement contributions is that you get extra time – generally, you have until April 15 of the following year to make contributions that count for the previous year, and with some retirement accounts, you have until the extended filing deadline (September 15th for corporations and partnerships or October 15th for sole props).

Reviewing estimated tax payments

Did you make all your estimated tax payments this year? If not, it's time to catch up so that you don't face an unexpected tax bill in the spring. But if you've overpaid, you may want to reduce your last quarter's payment.

To avoid penalties, you must pay at least 90% of this year's tax liability or 100% of last year's bill. If your income is over $75,000 for a single filer ($150,000 if married filing jointly), you must pay 110% of last year's liability to avoid penalties.

Use Form 1040-SE to estimate your tax liability for this year based on your business's income and expenses – and don't forget to take into account expenses and deductions that are part of your Q4 tax strategies. Then, adjust your fourth quarter payment as needed.

Here's the IRS's small business, self-employed tax calendar so you can review due dates. Or check out this resource on paying taxes from the Small Business Administration.

Year-end tax planning checklist

Let's bring it all together with a year-end tax planning checklist:

• Estimate your tax liability: to start, look through your accounting records and estimate your tax liability based on your current profits and projected revenue and expenses for the year. Your potential tax bill shows you how much planning you need to do.
• Optimize deductions: to lower your tax bill, optimize your deductions. Consider prepaying expenses if allowed or investing in new equipment.
• Schedule retirement contributions: reduce your taxable income and plan for the future by making retirement contributions. Talk with a specialist to see if you should open a special small business retirement account so that you can save even more
• Maximize health savings accounts: if you qualify for an HSA or an FSA, you can reduce your taxable income by making contributions before the filing deadline of next year.
• Harvest investment losses: if you or your business owns stocks, consider selling off the losers and using the losses to offset other investment gains or some of your business income.

That covers the basics, but it's certainly not the end of the list. Depending on how much time you have or how many changes you're willing to implement, your accountant may be able to help you come up with more ideas.

Plan your tax strategy with Xero

Filing tax returns and end of the year tax prep relies on one component – the right numbers. And Xero can help you get there. Use Xero for your small business accounting and make tax season and Q4 planning easier than ever.

Ready to try? Get one month free now.

FAQs on year-end tax planning

Year-end tax planning is critical. A few hours of strategizing now can keep thousands or even tens of thousands of dollars in your pocket when you file your return. But it's complicated – so to help, here are answers to some of your most pressing questions.

When should I start year-end tax planning?

Schedule year in tax planning for Q4, but don't wait until the last week of December. Ideally, you should start looking over your records and developing a strategy in October or November so that you have time to execute.

Can I deduct purchases made in early January for 2025 taxes?

No, only purchases made in the current tax year qualify for write-offs. If you make a purchase in January 2026, you can claim that on your 2026 tax return – that's true even if the purchase was made the first day of January.

Should I buy equipment even if I don't need it just for the tax deduction?

No, even if you're in a high tax bracket, it doesn't make sense to spend money on things that you don't need. Make sure your year-end purchases are necessary for your business – and not just a wild attempt to reduce your tax bill.

What if I can't afford to prepay expenses or make large purchases?

You can claim write-offs even if you buy something with a loan or a credit card. You can also deduct interest paid as a business expense. But be careful that the interest doesn't outweigh the tax savings – in some cases, it's best to wait to make purchases.

Do I need to pay my Q4 estimated taxes before December 31?

Nope, your Q4 quarterly estimated tax payments aren't due until the end of January, but you need to focus on Q4 tax strategies because by the time January rolls around, most of your options (except retirement account contributions) are gone.

Can I still make retirement contributions after December 31 for 2025?

Yes, you have until April 15th to make qualifying retirement contributions for the previous tax year. SEP plans give you even longer – if you request a filing extension, you have until the extended deadline to set up your plan and make contributions. That's October 15th for sole props and September 15th for partnerships and corporations.

What happens if I overpay my estimated taxes?

Then, you'll get a refund when you file your annual tax return. Although it's fun to get a refund, try to avoid paying in too much, as that's effectively lending the government your money for free.