Smart Ways to Reduce Your Tax Bill Before December 31st
As 2025 comes to a close, San Diego business owners have a prime opportunity to tighten up finances, reduce taxable income, and set their companies up for a strong start in 2026. Whether you’re running a construction business in North County, a dental practice in Carlsbad, or a growing service-based company anywhere in the county, proactive tax planning is the key to keeping more of what you earn.
Here’s a practical, CPA-approved checklist to help you save on taxes before year-end.
1. Maximize Your Retirement Contributions
One of the most effective ways to reduce taxable income is to contribute to retirement plans. Business owners—especially S-corp and LLC owners—have several powerful options:
Solo 401(k)
If you’re self-employed with no employees (other than a spouse), you can contribute two ways:
- Employee deferral: Up to $23,000 for 2025
- Catch-up (ages 50+): Additional $7,500
- Employer contribution: Up to 25% of W-2 wages This can push your total contribution well over $60,000 depending on your compensation.
SEP IRA
Great for businesses with fluctuating income:
- Contribute up to 25% of wages (or net SE income)
- Max contribution: $69,000 for 2025
Cash Balance / Defined Benefit Plans
High-income owners can dramatically reduce taxable income with these plans. These work well for established businesses with consistent profits (contractors, real estate, medical practices, professional services, etc.)
Key Deadlines
- Employee deferrals: Must be done by 12/31
- Employer contributions: Tax filing deadline + extensions
2. Accelerate Deductions for Cash-Basis Taxpayers
If your business is on the cash basis (most small businesses are), accelerating deductions before December 31st can meaningfully reduce taxes.
Prepay expenses such as:
- Rent
- Insurance
- Software subscriptions
- Supplies or materials
- Professional fees
- Marketing/sponsorships
- Utilities
- Safety gear or tools
Catch up on outstanding bills:
Pay vendor invoices before year-end so they count as 2025 expenses.
Stock up strategically:
If you know you’ll need certain items in Q1 2026, buying them in December can reduce your 2025 taxable income.
3. Leverage Bonus Depreciation & Section 179
Fixed-asset strategy is one of the biggest year-end tax planning areas—especially for San Diego contractors, service-based businesses, and real estate groups.
Consider purchasing:
- Computers & office equipment
- Machinery
- Vehicles (including >6,000 lb SUVs & trucks)
- Tools & equipment
- Furniture
- Software
2025 Depreciation Strategy
- Section 179 allows many purchases to be fully written off in the year placed in service.
- Bonus depreciation still applies, but at a reduced percentage compared to pre-2023 law.
This can significantly lower your tax bill if the purchase makes business sense and is placed in service before 12/31.
4. Review Your Entity Type (LLC vs. S-Corp)
Many owners wait until tax season to revisit this—but year-end is actually the ideal time to evaluate whether your current structure is still serving you.
An S-Corp may save you money if:
- You are earning $60,000+ in net income, and
- You’re not currently paying yourself reasonable W-2 wages
An S-Corp can reduce self-employment taxes and create opportunities for retirement savings—but it must be set up and maintained correctly.
An LLC taxed as a sole proprietor may still be better if:
- You’re just starting out
- Income is highly volatile
- You prefer simplicity
A quick review with your CPA can tell you whether electing S-Corp status for 2026 is beneficial.
5. Clean Up Your Books Before December 31
Accurate bookkeeping is essential for tax strategy. Year-end is the time to:
- Reconcile all bank, credit card, and loan accounts
- Review vendor expenses & reclassify miscoded transactions
- Identify uncleared or stale items in bank registers
- Clean up owner draws & distributions
- Verify payroll and contractor payments
- Review sales tax and payroll tax liabilities
- Make sure fixed assets are properly recorded
Bad books = bad tax outcomes.
Clean books = more deductions and fewer IRS or FTB issues.
6. Review Estimated Taxes & Avoid Penalties
Many San Diego business owners underpay estimated taxes throughout the year and get hit with penalties.
Year-end is the time to run a projection and make sure:
- You’ve paid enough into Federal and California FTB
- You’ve accounted for S-Corp payroll requirements
- Your Q4 estimate (due January 15, 2026) is accurate
- You’ve factored in year-end income shifts, bonuses, or distributions
A small adjustment now can prevent a big surprise in April.
7. Defer Income Where Possible
Cash-basis taxpayers may benefit from pushing income into January.
Options include:
- Delay invoicing until January
- Push client payments into the new year
- Structure contracts so income lands in 2026
This only works if your business is cash-basis—and only when consistent with business operations.
8. Charitable Giving & Local Causes
San Diego business owners often support local nonprofits, schools, and community events.
Year-end charitable giving is deductible (if you itemize) and supports local initiatives.
You can give:
- Cash donations
- Non-cash property
- Appreciated assets
- Sponsorships for local events (often a marketing deduction)
9. Year-End Payroll Planning
Before December 31st, review:
- Owner payroll (S-Corp reasonable comp requirement)
- Final bonuses
- 401(k) employee contributions
- Correct classification of employees vs. contractors
- HSA/health benefit deductions
- Deferred compensation arrangements
Missing payroll deadlines can mean missing deductions for the entire year.
10. Meet With Your CPA Before Year-End
The best tax savings happen before December 31—not during tax season.
A year-end strategy session can help you:
- Run tax projections
- Estimate Q4 payments
- Adjust payroll
- Optimize owner compensation
- Finalize depreciation decisions
- Review entity elections
- Set up retirement plans
- Ensure your books are tax-ready
Final Thoughts
2025 has been a year of growth and change for many San Diego businesses. With the right planning, you can finish strong, reduce your tax liability, and enter 2026 with clarity and confidence.
If you need help with year-end planning, tax strategy, or getting your books cleaned up before filing season, feel free to reach out. Accounting Fresh specializes in helping local San Diego businesses stay organized, tax-efficient, and financially confident year-round.