Entrepreneur
As an entrepreneur, I’ve gotten accustomed to getting up early fairly often and hustling every day to build my business, and I know plenty of others who do it, too. While all of your hard work can pay off and lead to more revenue, it can also increase your annual tax liability. The good news is that there are several legal ways to reduce that tax liability in 2025 and beyond and free up more capital to reinvest in your business.
These strategies are about more than choosing the right tax software, although that’s an certainly a smart step. Here’s a look at some effective and legal ways to decrease your tax liability this year.
Related: 5 Ways Contracts Are an Entrepreneur’s Best Friend
Tax law changes you need to know about
The federal government has implemented several tax law changes designed to help you invest in green energy and employee retirement. Learn about these changes and how they could impact you in 2025:
Green energy credits
I have a friend who runs a medium-sized startup and he told me a few years back about how he’s been able to save on his taxes because he added additional electric vehicles (EVs) to his fleet. At least for now, the federal government is continuing to offer vehicle tax credits on eligible new and pre-owned EVs.
Traditionally, you would have to wait until the end of the year to apply these credits to your tax liability. However, you can now sell the credit to the dealer. It will apply the credit to the upfront cost of the EV, reducing your out-of-pocket expenses. The EV credit will reduce the cost of a new electric vehicle by up to $7,500. The credit for qualifying pre-owned EVs is $4,000.
Setting Every Community Up for Retirement Enhancement (SECURE) Act
Several updates to the SECURE Act take effect in 2025. You can now offer higher catch-up contributions to qualifying retirement plans. This means you can contribute more money to eligible retirement plans, which reduces your tax liability while also helping your employees prepare for life after work.
Make sure to take advantage of the new catch-up allowances under the SECURE Act to improve employee morale and retention. Combining increased contributions with fair raises can be an effective way to remain competitive in the current talent environment. These perks incentivize job seekers to come to your business and encourage existing employees to stick around.
Related: Now Is the Best Time to Consider Offshoring At Least 1 Job at Your Company — Here’s Why.
5 ways to reduce your company’s tax liability in 2025
Ready to decrease your tax liability this year? Here are five strategies to explore:
1. Have a retirement plan for your employees and contribute to it
Over the years I’ve interviewed a lot of entrepreneurs about saving money on their taxes and many of them mention retirement plans as a solid place to start. Find a good plan for your employees and contribute to it. If you already offer a retirement plan, ensure you are contributing to it optimally. Depending on the type of plan and your contribution, you may qualify for multiple tax benefits, including the following:
- Employer contributions to retirement plans are tax-deductible, lowering your taxable income
- Retirement plan startup costs tax credits provide even more savings
- Contributions to employee retirement accounts can help attract and retain talent
The SECURE Act 2.0 allows you to contribute even more to eligible retirement accounts. Crunch the numbers and determine the optimal amount to contribute to employee retirement accounts to reduce your tax liability.
Related: 4 Insanely Easy but Overlooked Tactics to Advance Your Entrepreneurial Career
2. Use an accountable plan for employee expense reimbursements
The IRS allows you to reimburse employees for a wide range of job-related expenses. Some of the expenses you may be able to reimburse employees for include the following:
- Travel expenses, including flights, lodging and meals
- Business use of personal vehicles
- Internet and phone costs for remote or hybrid employees
However, you’ll need to accurately track these expenses throughout the year and document every reimbursement. You need an auditable paper trail that supports the deductions you list on your tax documents.
When you follow IRS guidelines for an accountable plan, these reimbursements do not count as taxable income for the employees. Make sure you don’t reimburse the expenses as part of employees’ paychecks. Instead, issue separate reimbursement payments so you and your team members reap the tax benefits from this program.
Related: Offer These 8 Terms in Your Employee Relocation Packages to Make Your Offers More Competitive
3. Offer health insurance and dependent care options
Providing health insurance and dependent care assistance can be a strategic way to reduce your taxable income while offering valuable benefits to employees. Depending on your business size, the following tax benefits may be available:
- Premiums paid for employees under a group health plan are tax-deductible
- If your business has fewer than 25 employees and pays at least half of their premiums, you may qualify for the Small Business Health Care Tax Credit
- You can offer tax-free dependent care benefits to employees to reduce the tax burden on your business and your team members
These tax-friendly benefits not only help you save on taxes but also boost employee morale and retention. If you are already offering these types of perks, make sure you are taking advantage of tax credits your business qualifies for.
4. Buy new assets before year’s end
Does your business need new equipment or vehicles? Is it time for a tech upgrade? You can make these purchases at any time during the tax year and claim them as deductions to lower your taxable income for the year. Section 179 of the Internal Revenue Code allows you to claim these as immediate expense deductions. Before buying new assets, consider the following:
- Alignment with business needs: Don’t buy unnecessary assets just for tax benefits
- Cash flow: While deductions help lower taxable income, they still require an upfront investment that can impact your cash flow
- IRS limits: Some deductions have maximum limits depending on the asset type and your company’s income
Focusing on necessary tax-deductible upgrades is a smart way to invest in your business while reducing its tax liability.
Related: How to Become a Better Leader Through a Crisis
5. Defer income to the next year
Deferring income to next year can provide a quick win that alleviates your tax liability. You can record unearned revenue, such as advance payments for services or products, as a liability rather than income until you receive the goods or services that are rendered. Here are a few legal ways to defer income:
- Delay sending invoices until early January 2026
- Postpone receiving payments on completed contracts
- Structure contracts to spread payments over multiple tax years
Creating favorable contracts can help you defer income to the next year, especially if those agreements have installment plans or are being executed close to the end of the year.
Choosing the right tax strategies for your business
Reducing tax liability requires proactive planning throughout the year, not just when tax season arrives. Take advantage of available tax credits and deductions to minimize your tax burden in 2025.
Once you unlock tax savings with these strategies, identify high-impact opportunities to reinvest in your business. You can allocate the funds toward dynamic marketing principles or hire a coach or mentor to help take your business to the next level.
Related: How to Reward Employees in Uncertain Times
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