Year-End Tax Planning Considerations

Most businesses should review how they time income, expenses, and capital purchases, particularly because OBBBA affects deductions, expensing rules, and several credit calculations starting in 2025. Early evaluation improves predictability and reduces surprises when filing 2025 returns.

Covenant Tax and Accounting Solutions (CTAS) can help model these scenarios to ensure your business takes full advantage of available opportunities before December 31.

2025 Year-End Tax Planning Strategies

Get Your Books in Order
Accurate, up-to-date books are essential. Review bank and credit card reconciliations, categorize expenses, address outstanding payables/receivables, and confirm fixed asset purchases. The Covenant Tax and Accounting Solutions team can assist with bookkeeping cleanup and year-end review.

Organize Your Tax Documents
Gather W-2s, 1099s, Schedule K-1s, payroll records, contractor payments, and inventory counts early to avoid delays during filing.

Evaluate Timing of Income and Expenses
Cash-basis businesses may benefit from accelerating expenses or prepaying certain costs. Accrual-basis businesses should consider different timing strategies. Modeling scenarios can clarify the optimal approach.

Maximize Charitable Contributions
Donations made by December 31 reduce taxable income. Consider cash, appreciated stock, donor-advised funds, or non-cash gifts such as equipment or household items.

Bundle Itemized Deductions
With the standard deduction expected to rise in 2025, bundling deductions—such as charitable gifts or medical expenses—into a single year can maximize benefits.

Leverage Energy and Clean Vehicle Credits
Home energy improvements and clean vehicle purchases may qualify for credits. Review eligibility rules and timing to capture these tax benefits.

Maximize Retirement Contributions
Contributions reduce taxable income and build long-term savings. 2025 limits include:

• 401(k) elective deferral
  • $23,500 (under 50)
• Catch-up (50+)
  • $7,500
• Super catch-up (60–63)
  • $11,250 (if plan allows)
• IRA contribution
  • $7,000
• IRA catch-up (50+)
  • $1,000
• Solo 401(k) total
  • Up to $70,000 (<50), up to ~$77,500+ with catch-up
• SEP IRA
  • Up to $70,000 (<50), no catch-up
• SIMPLE IRA
  • $16,500 (<50), $3,500 catch-up

Review contribution levels before year-end to maximize both tax and retirement benefits.

Review Business-Specific Strategies

Evaluate factors unique to your business, including:

• Compensation planning: Ensure reasonable S-corporation owner compensation and determine bonus timing.
• Asset purchases: Confirm eligibility for Section 179 expensing or enhanced bonus depreciation.
• Accounting methods: Assess whether cash vs. accrual methods—or other permitted changes—reduce taxable income.
• Inventory/COGS: Review year-end inventory and consider adjustments, write-downs, or method changes.

Consider a Roth Conversion
If you anticipate higher future tax rates, converting to a Roth before year-end allows growth to remain tax-free. Professional guidance is recommended.

Tax-Loss Harvesting
Selling underperforming investments can offset capital gains. Excess losses can reduce ordinary income by up to $3,000, with remaining losses carried forward.

Proactive year-end planning under OBBBA can reduce 2025 tax liability, strengthen financial positions, and create more predictable outcomes for next year. The Covenant Tax and Accounting Solutions (CTAS) team can guide you through these strategies to ensure you capture every available opportunity.