Every business owner feels it—that fourth quarter pressure to “get things squared away” before December 31. But year-end isn’t just about balancing the books. It’s when entity decisions, compensation tweaks, and deduction timing can shift five or six figures over your career.

And 2025 offers a rare bit of stability: tax brackets are steady, the Qualified Business Income (QBI) deduction is still in full force, and you have one clean year before several provisions face potential sunset in 2026. In other words, this is the moment to act intentionally.

Here’s a practical, owner-centric guide to wrapping up 2025 with strategy: choosing (or fine-tuning) your entity, optimizing QBI, timing deductions, and positioning your business for next year’s return.

1. Choose the Right Entity for 2025 and Beyond

It’s one of the most foundational tax decisions you’ll ever make—how your business is structured. The entity you operate under doesn’t just affect liability; it dictates how your income is taxed and what levers you can pull in the fourth quarter.

A sole proprietor or single-member LLC keeps things simple. You report business income directly on Schedule C and pay self-employment tax on all net earnings. Straightforward, yes, but it starts feeling inefficient once profits climb above a modest threshold.

Enter the S-Corporation. Whether you’re an LLC electing S-status or an incorporated entity making the election, you can split your income between salary (subject to payroll taxes) and distributions (which aren’t). Pay yourself a “reasonable salary,” and the rest of the profit avoids self-employment tax.

Then there’s the less common route for small service firms—the C-Corporation. While it carries the burden of double taxation (once at the corporate level, again on distributions), it can make sense for businesses that retain profits, offer significant fringe benefits, or have long-term growth or succession goals.

In short: the right structure depends on income, reinvestment strategy, and administrative tolerance. But the fourth quarter is the perfect time to evaluate whether your setup still fits your goals.

For growing or multi-owner firms, especially those crossing the seven-figure revenue mark, entity choice becomes more than a tax question—it’s an ownership strategy. S-Corps can limit flexibility when bringing in new partners or investors, while LLCs taxed as partnerships often provide better options for allocating profits, ownership changes, and fringe benefits.

Medium-sized companies should also consider state-level implications: payroll taxes, unemployment insurance, and multi-state nexus rules can all vary depending on whether you operate as an S-Corp, C-Corp, or partnership. A review each fall helps ensure the structure you started with still fits how you operate now.

2. When an S-Corp Election Actually Makes Sense

S-Corp elections are popular for good reason—they can meaningfully cut self-employment taxes—but they aren’t a magic wand.

For most owners, S-Corp status starts to make sense when net income exceeds roughly $50,000 to $70,000. Below that, the costs of payroll administration and compliance often outweigh the savings. Above that range, though, the math shifts quickly.

Here’s the catch: the IRS requires “reasonable compensation” for your work. Pay yourself too little, and you risk an audit. Pay yourself too much, and you undo the tax benefit.

Say your business nets $200,000, and you pay yourself an $80,000 salary. That’s a realistic figure for many owner-operators—and it could reduce self-employment tax liability by about $10,000 compared to sole proprietorship treatment.

For companies with several employees or multiple owners, the “reasonable salary” issue extends beyond the founders. W-2 wages paid to key employees can strengthen the QBI wage test (covered later), while simultaneously helping justify the owner’s salary level in IRS eyes.

If you’re already running payroll for a team, the additional compliance burden of S-Corp status is minimal—making the potential savings even more compelling for mid-sized firms.

But you must treat it like a real business: payroll filings, quarterly tax payments, accurate W-2 reporting, and formal distributions of profits. It’s not difficult, but it is procedural. If you’re thinking about switching, the election (Form 2553) generally must be filed within two months and 15 days of the start of your chosen tax year—but late election relief is available.

Q4 is an ideal time to model the numbers, set salary levels, and prepare the transition for January 1.

3. Maximize the Section 199A Qualified Business Income (QBI) Deduction

The QBI deduction remains one of the most valuable—yet misunderstood—tax breaks available to business owners. It allows qualifying pass-through entities (Sole proprietors, partnerships, S-Corps, some LLCs) to deduct up to 20% of qualified business income from taxable income.

The deduction isn’t simple, though. It phases out above certain income thresholds—historically around $191,950 for single filers and $383,900 for joint filers (subject to inflation adjustment for 2025). Once you exceed those limits, the deduction depends on the greater of:

• 50% of W-2 wages, or
• 25% of W-2 wages plus 2.5% of qualified property (like equipment or real estate).

That’s why the S-Corp salary you pay yourself, or the timing of a major equipment purchase, can directly affect your QBI deduction. Too low a salary, and you might fail the wage test; too high, and you’ve overpaid payroll taxes. There’s a sweet spot, and it’s worth modeling precisely.

Certain professions—called “Specified Service Trades or Businesses” (SSTBs)—face additional limits. These include healthcare, law, accounting, consulting, and financial services. As income rises, the deduction phases out entirely for high earners in these fields. For them, entity structure and timing of deductions become critical levers.

For larger operations, coordination between payroll, depreciation, and QBI modeling is essential. The deduction’s wage/property test means that a company with significant equipment or real estate often has more flexibility than a pure service business. Adjusting year-end bonuses or equipment purchases can dramatically affect eligibility.

Multi-owner partnerships and S-Corps should ensure profit allocations and guaranteed payments are structured correctly—misclassifying owner compensation can unintentionally reduce the QBI benefit.

The key takeaway: QBI planning is not a set-it-and-forget-it rule. Each year’s profit level, wages, and investments can change your deduction. 2025 still holds clear rules, but 2026 could bring revisions if parts of the Tax Cuts and Jobs Act expire. Keep this deduction on your radar.

4. Year-End Expense and Income Timing

When you file your taxes, the difference between cash-basis and accrual-basis accounting isn’t just a technicality—it’s a strategy.

Cash-basis owners can pull powerful year-end levers. If you prepay deductible expenses before December 31 (think software subscriptions, maintenance contracts, professional fees, or charitable gifts) you accelerate the deduction into 2025. Likewise, delaying invoicing until January can defer taxable income.

Accrual-basis owners have less flexibility because they recognize income when earned and expenses when incurred. But even here, managing inventory levels, reserves, and payables can create some timing advantages.

Also don’t overlook estimated taxes. If profits are higher than expected, increasing your fourth-quarter estimated payment by January 15 can prevent underpayment penalties.

And while it might sound obvious—document everything. Prepaid expenses should have clear invoices and payment records. The IRS isn’t moved by “I swear I paid that last year.”

5. Capital Expenditures: Section 179 and Bonus Depreciation

Few year-end tax plays are as satisfying as buying something your business genuinely needs and writing off the cost right away.

Section 179 lets you deduct the full cost of qualifying property—like machinery, computers, vehicles, or office equipment—up to an annual dollar limit, which phases out once your total purchases exceed a threshold (both figures are indexed for inflation annually).

Bonus depreciation, by contrast, applies automatically to new and used property that meets IRS guidelines, allowing a large percentage (though decreasing each year) to be deducted in the first year.

But here’s the catch that trips people up: the property must be placed in service by December 31. Ordered or paid for isn’t enough. If the new truck is still sitting on the dealer’s lot on January 2, it’s next year’s deduction.

Planning tip: for owners who straddle income thresholds, pairing Section 179 with QBI wage and property tests can be a smart move—boosting deductions while preserving the wage/property balance.

For mid-sized businesses, these depreciation tools can create large swings in taxable income. Coordinating Section 179 and bonus depreciation across entities or subsidiaries can prevent one company from hitting the phase-out threshold while another leaves deductions unused.

If you operate across multiple states, remember that some states (like California) don’t fully conform to federal depreciation rules—your federal and state tax outcomes might differ significantly.

6. Owner Compensation, Payroll, and Self-Employment Taxes

The final pay runs of the year matter more than you might think.

S-Corp owners should confirm that all payroll filings are current, W-2s reflect accurate year-to-date wages, and any planned bonuses are processed before December 31. Doing so not only ensures compliance—it can fine-tune your QBI and retirement plan calculations.

For sole proprietors and partners, remember that self-employment tax equals 15.3% on net earnings up to the Social Security wage base, plus additional Medicare taxes at higher income levels. Structuring through an S-Corp can reduce that burden on profits distributed as dividends, but not on wages.

If you’ve ever been surprised by a big April tax bill, chances are your withholding or quarterly estimates didn’t keep pace with profits. The fourth quarter is your window to fix that.

Businesses with multiple employees should also review fringe benefits—health insurance premiums, HSA contributions, and retirement plan matches. These employer expenses are deductible but must be paid by December 31 for cash-basis taxpayers. For companies offering group health or profit-sharing bonuses, year-end timing determines which side of the tax year they fall on.

If you process payroll internally, confirm that all W-2s include accurate shareholder benefits and officer compensation. Errors discovered after year-end can delay filings and invite unwanted attention from payroll tax examiners.

7. Retirement Plans for Owners

If there’s one strategy that combines tax efficiency with long-term benefit, it’s retirement contributions.

Solo 401(k)s allow both employee and employer contributions—often up to a combined limit north of $60,000 for 2025 (plus catch-up for those 50+). The key: the plan must be established by December 31, even if you fund it later.

SEP-IRAs offer flexibility since they can be created and funded up to your tax-filing deadline, including extensions. However, they must generally cover eligible employees and follow uniform percentage rules, which can increase total outlay if you have staff.

For high earners looking for maximum deductions, cash balance or defined benefit plans can shelter hundreds of thousands of dollars in pre-tax contributions—but they require actuarial setup and consistent funding. These take planning, not improvisation.

Think of retirement plans as both a tax deduction and a wealth-transfer strategy—to future you. If you’re considering one, make that decision before Thanksgiving, not New Year’s Eve.

For companies with employees, retirement plan design gets more complex—but also more rewarding. Adding a Safe Harbor 401(k) match or profit-sharing component can both reduce the owner’s tax burden and help attract or retain key staff.

If cash flow allows, a combined 401(k) + cash balance plan structure can drive six-figure deductions while building meaningful retirement wealth for the leadership team.

8. Decision Roadmap and Year-End Timeline

Here’s a simple framework to keep your Q4 tax strategy organized:

October:

• Revisit your entity structure (LLC vs. S-Corp).
• Model reasonable salary levels for S-Corp owners.
• Run preliminary QBI and retirement plan projections.

November:

• Place orders for major equipment purchases.
• Finalize bonus decisions and payroll adjustments.
• For multi-employee firms, confirm that year-end bonuses, employer retirement contributions, and health insurance premiums are processed on time and accurately reflected in payroll.
• Establish your Solo 401(k) or cash balance plan.
• Update Q4 estimated tax payments if needed.

December:

• Confirm “placed in service” status for any assets.
• Execute year-end purchases and contributions.
• Distribute profits and confirm payroll accuracy.
• Close books cleanly—next year’s you will be grateful.

Think of it like a relay race—the baton you pass in December determines how fast you start next year.

Closing Thoughts: Finish the Year with Intention

Tax planning doesn’t have to mean late nights with spreadsheets and stale coffee. For most business owners, it’s about structuring things intelligently once—and maintaining that system year after year.

A few key decisions in Q4 can ripple across decades of returns. Whether that’s electing S-Corp status, fine-tuning your QBI, or maxing out a retirement plan, the work you do now sets the stage for a calmer, more confident tax season.

At Suttle Crossland, we help business owners design their Q4 playbook—Because business success isn’t just about earning more—it’s about keeping more of what you earn.