Ready for Financial Confidence?
The changes in tax guidelines at both the federal and state levels in 2025 bring new complexities, as well as opportunities, for small business owners to reduce their tax liabilities and improve cash flow.
Federal Tax Changes to Know in 2025
Expiring QBI Deductions
Qualified Business Income (QBI) has helped small business owners save significantly as it allows tax deductions up to 20% of their QBI whether you run a sole proprietorship, partnership, S corporation, estate or trust. Unless extended by Congress, the QBI deduction will expire on December 31, 2025.
For small business owners, it’s important to understand what qualifies for QBI deductions, and what, if any, adjustments can be made to expenses, such as owner compensation, to maximize the benefits of the QBI deduction. such as self-employed health insurance and retirement plan contributions. Additionally, there should be a clear understanding of what income and expenses are excluded, such as capital gains, losses and certain types of interest income.
Inflation Adjustments
In 2025, the IRS adjusted tax brackets, standard deductions, and retirement plan contribution limits to reflect inflation. The standard deduction for married couples filing jointly has been raised to $30,000. If you contribute to a solo 401(k), the maximum you can put in has increased to $66,000—including catch-up contributions if you’re 50 or older.
Bonus Depreciation Phasing Out
Bonus depreciation, which has allowed businesses to claim significant tax deductions by writing off a large portion of an asset’s cost in the first year it’s placed in service, is being gradually phased out. In 2025, you can claim 40% of the asset’s cost, but this benefit will completely phase out by 2027, pending no changes by Congress.
If you’re planning to purchase equipment or other qualifying assets for your small business, it’s a good idea to make those purchases sooner to take full advantage of bonus depreciation before it decreases further.
Here are a couple more tax changes that are specific to Louisiana.
3% Flat Individual Income Tax Rate
As of January 1, 2025, Louisiana moved to a flat 3% individual income tax rate, doing away with its tiered income brackets. This makes state tax filing comparatively straightforward.
Sales Tax Increase and Expansion
Louisiana’s 2025 sales tax changes bring both clarity and complexity for small business owners. According to Louisiana Life Safety & Security Association (LLSSA), the state sales tax rate rose from 4.45% to 5% as of January 1, 2025. Further, the tax base expanded to cover digital goods and access to prewritten software, affecting industries like e-commerce, real estate, tech, and security. Hence, if your business sells digital services or uses cloud-based software, it’s time to revisit your invoicing and compliance practices.
How Can Small Businesses Use Mid-Year Tax Tips Millionaires Use?
Small business tax tips can mirror the same mid-year strategies millionaires use to manage taxes and boost savings.
1. Early Contributions to Retirement Plan
One key strategy the wealthy use is prioritizing retirement contributions early to reduce their taxable income. Small business owners may be eligible for the following:
- SEP IRA: Deduct up to 25% of your compensation, with a maximum contribution of $70,000 for 2025.
- Solo 401(k): Contribute up to $23,500 as an employee, plus employer contributions, for a total up to $70,000.
- SIMPLE IRA: Contribution limits have increased to $16,500 for 2025.
Action: Take a look at your income projections and make the most of your retirement contributions before the year ends to lower your taxable income.
2. Accelerate or Defer Income and Expenses
By strategically timing your incomes and expenses, you can manage your tax liability and improve your cashflows. For example, buying equipment or prepaying bills before the end of the year results in increased tax deductions in the current tax year.
On the other hand, delaying invoices until the next tax year will push your tax liability into the future. However, with the Qualified Business Income (QBI) deduction potentially expiring after 2025, it’s important to plan carefully, as deferring income could become less beneficial down the road.
3. Leverage Bonus Depreciation and Section 179 Expensing
For businesses like contractors, building firms, and real estate owners, equipment and property improvements can bring a lot of tax savings. 2025 bonus depreciation allows you to claim 40% of the cost of qualifying property immediately when you put it in service.
As per the IRS, Section 179 gives small business owners the chance to deduct up to $1,250,000 in qualifying equipment or property purchases in 2025. An alternative tactic to benefit from expenses related to most fixed assets, this may be a smart move for businesses looking to invest while reducing taxable income. Just keep in mind, the deduction begins to phase out after you spend more than $3,130,000 total and if you’re purchasing SUVs, the cap is limited to $31,300 and like all assets used in a business, the deductibility is limited to the percentage of business use of the asset.
4. Adjust Estimated Tax Payments
Taking a mid-year look at your estimated tax payments can save you from costly surprises. To avoid IRS penalties, you need to pay at least 90% of your current year’s expected tax or 100% of last year’s total (110% if your income exceeds $150,000) through quarterly payments.
If your income has changed, updating your estimates using IRS Form 1040-ES helps you stay compliant and maintain steady cash flow.
5. Tax-Free Gifting Strategy
Millionaires often gift assets not just out of generosity, but as a smart tax move. Strategic gifting allows you to shift wealth while minimizing estate taxes. In 2025, you can give up to $19,000 per person without triggering gift tax or affecting your lifetime exemption.
If you’re thinking about passing assets to family or preparing for business succession, incorporating a gifting strategy now can ease future tax burdens. Talk to a tax advisor to make sure it’s aligned with your overall plan.
Consult with the experts to plan ahead for taxes related to your small business.
Common Mid-Year Tax Planning Pitfalls to Avoid
Here are the common mistakes you’d want to avoid:
Underpaying Estimated Taxes
Failing to pay enough estimated taxes throughout the year can result in costly penalties and interest charges from the IRS. The IRS requires you to pay at least 90% of your current year tax liability or 100% of last year’s tax (110% if your income exceeds $150,000) via quarterly estimated payments. Regularly reviewing your income and adjusting payments accordingly helps avoid surprises and keeps your business compliant. Staying proactive with estimated taxes is especially important in 2025, given the changing income levels and tax rates.
Missing Retirement Plan Deadlines
Contributions to SEP IRAs can be made up until your tax filing deadline, including extensions, giving you flexibility to maximize retirement savings. However, employee deferrals to solo 401(k) plans must be made by December 31 of the tax year. So, it’s crucial to act before year-end. The year-end deadline does not apply to the employer’s “profit share” contribution. Missing these deadlines can mean lost opportunities for valuable tax deductions and retirement growth. Keep track of these dates to ensure your retirement planning stays on course.
Ignoring State-Specific Changes
Louisiana’s sweeping tax reforms that took effect in 2025-including a flat 3% individual income tax rate, a flat 5.5% corporate tax, and expanded sales tax on digital products-require careful attention. Ignoring these changes can lead to compliance issues and missed tax-saving opportunities. Small business owners should stay informed about local tax rules and work with advisors familiar with Louisiana’s evolving tax landscape to avoid costly mistakes.
Poor Recordkeeping
Accurate and organized recordkeeping is necessary to support deductions and credits reported on your tax returns. Without proper documentation, deductions can be rejected by the IRS, adding to your tax bill and audit risk. Keep precise accounts of all business expenses, receipts, and financial transactions during the year.
Proper bookkeeping not only assists with tax compliance but also offers insightful information in running your business.
Why Mid-Year Tax Planning Matters
Mid-year tax planning isn’t just for the rich, it’s an essential process for small business owners to control their tax outcomes. With proactive strategies, you can reduce your tax obligation in the current year, and improve cash flow. Taking some time now to review your tax situation prevents surprises and prevents your business from paying what you shouldn’t.
Unsure of where to start or want to ensure you’re maximizing your tax savings? Consult a tax advisor who understands your unique tax scenario and provides valuable guidance.
FAQs
When is the deadline to contribute to a SEP IRA for 2025?
Contributions can be made up until your tax filing deadline, including extensions (typically April 15, 2026, or October 15, 2026, if extended).
How can I avoid IRS penalties on estimated taxes?
Make sure your estimated payments equal at least 90% of your current year tax or 100% of last year’s tax liability, paid quarterly.
What happens if the QBI deduction expires?
Your taxable income could increase significantly, potentially raising your effective tax rate by up to 16%, so planning entity structure and deductions now is critical.
