5 Legal Ways to Reduce Your Tax Bill Before Year-End
A profitable year is a good problem to have. But as December approaches, many business owners find themselves staring at a tax bill that feels bigger than it needs to be. The good news is that the tax code contains legitimate tools to reduce what you owe, and most of them require action before the calendar flips.
The strategies below are general in nature. Tax laws change, the figures cited here reflect general guidance at the time of writing, and what works well for one business may not be the right fit for another. Before acting on any of this, talk with your CPA or tax advisor.
1. Time Your Income and Expenses Deliberately
One of the most accessible ways to manage taxable income is simply controlling when money comes in and when expenses go out. This is not a gray area. It is a standard part of tax planning that accountants recommend every year.
Pull expenses into the current year
If you have business expenses that you were planning to incur in January, paying them before December 31 may allow you to deduct them this year instead. This can include prepaid rent, insurance premiums, professional subscriptions, or supplies. If you need equipment, purchasing it before year-end could also work in your favor. For 2024, bonus depreciation allows businesses to deduct 60% of the cost of qualifying property placed in service during the year (Kaufman Rossin, August 2024). Section 179 provides another option for immediate expensing up to the statutory limit. Your tax advisor can help you determine which method applies to your situation.
Year-end bonuses paid to employees before December 31 may also be deductible in the current tax year, including bonuses paid to an owner who is on payroll.
Push revenue into next year
If your business uses the accrual method of accounting, you may be able to defer recognizing certain revenue by delaying invoicing or product delivery until January. This shifts income into a future tax year and reduces what you owe now. Getting this right requires attention to contract terms and delivery dates, so review the details with your accountant before adjusting your billing schedule.
2. Claim Every Deduction You Are Entitled To
High-profit businesses tend to have more deductible expenses than they realize. The challenge is documentation, not eligibility.
General business expenses
Ordinary and necessary business expenses are deductible. That includes home office costs if properly calculated, business-related travel, professional development, consulting fees, and marketing. The IRS expects meticulous records, so make sure receipts, mileage logs, and business purpose documentation are organized and complete.
Depreciation strategies for capital assets
If your business owns significant equipment, machinery, or real estate, advanced depreciation methods may unlock substantial deductions. Section 179 and bonus depreciation allow for accelerated write-offs on qualifying property (Kaufman Rossin, August 2024). For businesses with commercial real estate holdings, a cost segregation study can reclassify certain building components into shorter depreciation categories, potentially moving significant deductions from 39 years out to as few as 5 or 7 years. These studies are not cheap to commission, but they often pay for themselves many times over.
Tax credits worth investigating
Credits reduce your tax bill dollar for dollar, making them more valuable than deductions of the same size. Depending on your industry and activities, your business might qualify for the Research and Development Tax Credit, energy efficiency incentives, or credits tied to specific hiring categories. Identifying these takes research and often requires a specialist, but the payoff can be meaningful.
3. Review Your Business Structure
The entity you operate under affects how your profits are taxed and what deductions are available to you as an owner. For most businesses, this is reviewed at formation and then ignored. That is a mistake.
Whether you are running an S-corp, C-corp, LLC, or partnership, each structure carries different implications for how income flows to your personal return, how you pay yourself, and what benefits you can access. If your business has grown significantly, the entity structure you started with may no longer be the most efficient one. This is worth a conversation with your CPA before year-end.
The QBI deduction under Section 199A
Owners of pass-through entities may be eligible to deduct up to 20% of qualified business income under Section 199A of the Tax Cuts and Jobs Act. The deduction phases out at higher income levels and is also limited by factors like W-2 wages paid and the value of qualified property held by the business. For high-profit businesses operating near or above these thresholds, the planning required to maximize this deduction gets technical quickly. Your tax advisor should be modeling this annually.
For business owners looking for customized planning in this area, our small business financial advisory team works through exactly these decisions with clients throughout the year, not just at tax time.
4. Use Retirement Contributions as a Tax Tool
Retirement plans serve two purposes at once: they build wealth for the future and reduce taxable income in the present. For profitable business owners, this is one of the most underutilized levers available.
The share of small businesses with an active retirement plan in the U.S. rose from fewer than one in five to nearly one in three between 2019 and 2025, increasing access for 5.6 million workers (Gusto, February 2026). That shift reflects a growing awareness of how powerful these plans can be, both for employees and for the owner's own tax bill.
Plan options worth knowing
A 401(k) allows employees and owners to defer income pre-tax, with room for employer contributions on top. SEP IRAs are simpler to administer and allow employer contributions based on a percentage of compensation. SIMPLE IRAs work well for smaller teams. Defined Benefit Plans can support very large tax-deductible contributions for older, higher-income owners, sometimes well into six figures annually, depending on age and income. Cash Balance Plans, a hybrid between defined benefit and defined contribution structures, can do the same and are worth exploring for business owners who want to accelerate savings significantly in their peak earning years.
Health Savings Accounts are worth mentioning here too. Contributions are pre-tax, growth is tax-free, and withdrawals for qualified medical expenses are also tax-free. For high earners who can afford to pay medical costs out of pocket now and let the HSA grow, it functions as an additional retirement savings vehicle over time.
If you want to explore what retirement plan options make sense for your business structure, our small business retirement planning services are a good place to start.
5. Think About Charitable Giving and State Tax Planning
Charitable contributions
Direct contributions to qualified charities are deductible for businesses, subject to AGI limitations. Corporate giving in the U.S. increased to $44.40 billion in 2024, a 9.1% increase from the prior year (National Philanthropic Trust, 2026). For owners with meaningful philanthropic goals, a Donor-Advised Fund allows you to contribute a lump sum in a year when it is most advantageous for taxes, take the immediate deduction, and then recommend grants to specific charities over time. Contributing appreciated stock or other assets to a DAF can be especially efficient: you generally get a deduction at fair market value without recognizing the capital gain.
State and local tax planning for multi-state businesses
Businesses paid $1.1 trillion in state and local taxes in the U.S. in fiscal year 2024, accounting for 45.8% of all state and local tax revenue (Council on State Taxation and Ernst & Young, 2024). The federal deduction for state and local taxes is currently capped at $10,000 per household for individuals. Many states now offer Pass-Through Entity tax elections that allow S-corporations and partnerships to pay state income tax at the entity level. When structured properly, those payments can be deducted as a business expense, effectively working around the federal cap. This is an area where the rules vary significantly by state and change frequently, so it needs careful attention from your advisor.
A Note Before You Act
Year-end tax planning is most effective when it starts well before December. Some of these strategies require time to implement correctly, and waiting until the last week of the year limits your options. If you have not yet had a year-end planning conversation with your CPA or financial advisor, now is the right time to schedule it.
At Bellerophon Wealth Management, we work alongside our clients and their tax professionals to make sure financial planning and tax strategy are moving in the same direction. Our investment management approach is built around coordination across all parts of your financial life, not just the portfolio. If you would like to talk through how these considerations fit into your broader financial picture, we are glad to have that conversation.
This content is for informational and educational purposes only and does not constitute personalized investment, tax, or legal advice. Individual circumstances vary. Please consult with a qualified financial advisor, tax professional, or attorney before implementing any strategies discussed here. Securities and advisory services offered through LPL Financial, a registered investment advisor, Member FINRA/SIPC.