Tax planning strategies for small businesses for the 2025 tax year

By Benita A. Manglona

As the new year begins, it's essential to recognize that tax planning isn't just a year-end activity. To truly maximize tax savings opportunities, planning must start early to allow for the required implementation processes. Below, I highlight a few key tax planning strategies for 2025. These are just a handful of the many strategies that, when properly executed, can yield significant tax benefits.

1. Utilize the Qualified Business Income deduction
The QBI deduction allows eligible self-employed individuals and small business owners to deduct up to 20% of their qualified business income. This deduction applies to individuals, partnerships, S corporations, and some trusts and estates. However, eligibility is subject to various limitations, including:
The type of trade or business
Taxpayer's taxable income
W-2 wages paid by the business
Unadjusted basis immediately after acquisition of qualified property
To qualify, maintain proper business classification and ensure sufficient W-2 payroll levels.

2. Maximize retirement plan contributions
Consider setting up retirement plans like SEP IRAs, SIMPLE IRAs, or 401(k)s to reduce taxable income while saving for retirement. Some strategies include:

• Maximize contributions to reduce taxable income
• Take advantage of a tax credit of up to $5,000 for the costs of starting a new retirement plan.
• Explore defined benefit plans for higher contribution limits if your business has substantial profits.

3. Leverage the Work Opportunity Tax Credit
The WOTC provides a federal tax credit to employers for hiring individuals from target groups who face barriers to employment, such as:

• Veterans
• Ex-felons
• Long-term unemployed individuals

This credit reduces the cost of hiring while creating job opportunities for underserved populations.

4. Take advantage of the Small Business Health Care tax credit
Small businesses that pay at least 50% of the cost of single coverage for employees and have fewer than 25 full-time equivalent employees may qualify for this credit. This credit can help offset the cost of providing health insurance to employees, making it easier to attract and retain talent.

5. Expense deductions for business use of home
If you use part of your home exclusively and regularly for business purposes, you may be eligible for a deduction. This can be calculated using:
The simplified method, which provides a standard deduction of $5 per square foot (up to 300 square feet).
The regular method, which allocates actual expenses (e.g., mortgage, utilities) based on the percentage of the home used for business.

6. Depreciation and Section 179 expensing
Businesses can deduct the cost of qualifying property as an expense when it is placed in service. Under Section 179, you can write off significant asset purchases. However:
Bonus depreciation under Section 168(k) begins its phaseout in 2023, reducing the deduction from 100% to 80% for 2025.
Strategically timing these expenses can help maximize deductions.

7. Review business structure
Your business structure significantly impacts your tax liability. Consider:

• S-Corps to reduce payroll taxes with reasonable salary adjustments.
• LLCs for flexibility and pass-through taxation.
• C-Corps for potential lower corporate tax rates and retained earnings.
• Reassess your structure periodically to adapt to changes in tax laws and business needs.

8. Plan for capital expenditures
Timing is critical for capital expenditures. Align major purchases (e.g., equipment or vehicles) with years of higher income or favorable tax provisions. This ensures maximum benefit from depreciation or other deductions.
 

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Time to implement
By implementing these strategies, small business owners can reduce their tax liabilities and align their financial decisions with long-term goals. Staying ahead of tax law changes is crucial, as regulations may shift in 2025. Partnering with a tax professional ensures you remain compliant and seize opportunities for savings.

Proactive tax planning is an investment in the success of your business—start early and stay informed. Whether you are a small business owner or a high-net-worth individual, tax planning is the key to financial efficiency and growth.

What’s new
As business owners you have to make sure you stay updated on new taxes and tax changes. There’s a new reporting requirement that business owners and managers may want to take note of as it filing deadline of Jan. 13, 2025, approaches.

The Corporate Transparency Act introduced new Beneficial Ownership Information reporting requirements for certain U.S. entities to enhance transparency and combat financial crimes like money laundering and tax evasion. Beginning Jan. 1, 2024, businesses had until Jan. 1, 2025, to file their BOI reports. However, the deadline has recently been extended to Jan. 13, 2025, providing a slight reprieve for compliance.

Who must file BOI reports?
BOI reporting applies to most U.S. corporations, LLCs, and other entities created or registered to do business in the U.S. Specifically, these entities must disclose the following to the Financial Crimes Enforcement Network:

• Beneficial owners: Individuals who directly or indirectly own 25% or more of the entity or exercise substantial control over it.
• Company applicants: Individuals who filed the formation or registration documents for the entity.

Exemptions from BOI reporting
Certain entities are exempt from the BOI filing requirement, including:

• Publicly traded companies
• Large operating companies with over 20 full-time employees, more than $5 million in annual revenue, and a physical operating presence in the U.S.
• Banks, credit unions, insurance companies, investment advisors, and other entities already subject to substantial federal or state regulation.
• Tax-exempt organizations under 501(c).

Penalties for non-compliance
Failure to file a BOI report or providing inaccurate information can result in steep penalties:

• Civil penalties: Up to $500 per day for every day the violation continues.
• Criminal penalties: Fines of up to $10,000 and/or imprisonment for up to two years.

Action steps for businesses

1. Evaluate your filing requirement
Determine if your business qualifies for BOI reporting or falls under one of the exemptions.

2. Gather information
Collect the names, dates of birth, addresses, and identifying numbers (e.g., driver's license or passport) of all beneficial owners and company applicants.

3. File before the deadline
Ensure your BOI report is filed by Jan. 13, 2025, to avoid penalties.

4. Seek professional advice
Consult your legal or tax advisor to ensure full compliance with BOI reporting requirements and integrate tax-saving strategies into your broader financial plan.

Both BOI compliance and proactive tax planning should be high priorities as we enter 2025. By addressing these critical requirements now, businesses and individuals can reduce financial risks, avoid penalties, and optimize their tax outcomes. mbj

Benita A Manglona is a Certified Public Accountant licensed in Guam. Learn more about her at www.manglonacpa.com or call (671) 988-1010. Her company offers a broad range of services for business owners, executives, and independent professionals. She is a former director of the Department of Administration and also served as chief financial officer for the Guam Memorial Hospital Authority.