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      For Your Small Business Cindy McGhee December 2, 2025

      Business Tax Tips: 3 Questions To Ask Your CPA Before Year-End

      Key Summary

      • As year-end approaches, business owners should proactively consult their CPAs to explore optimal tax classifications, such as potentially reclassifying from an S Corporation to a C Corporation to benefit from lower corporate tax rates, especially with recent legislative changes.
      • Accelerating business expenses before December 31st can significantly reduce taxable profits; this includes making planned purchases of assets like equipment or vehicles to take advantage of bonus depreciation, or establishing a donor-advised fund for charitable contributions.
      • It's crucial to verify that sufficient tax payments have been made throughout the year via payroll deductions and estimated tax payments to avoid IRS underpayment penalties, which are calculated based on the shortfall, duration, and interest rates.
      • Engaging with your tax advisor on these key questions ensures you're making informed decisions to minimize your tax burden, allowing you to focus on strong year-end financial performance with confidence.

      As we approach the end of the fourth quarter, most business owners are focused on finishing the year with strong financial results. Your time and energy is primarily directed toward business profits, however your tax liability can be a significant speed bump on the sprint to year-end. You need the right tax tips to ensure your profits don’t get handed over to the IRS. Needless to say, you don’t need to be a tax expert, but it is key to ask the right questions of your tax advisor to ensure you and your business are making the best moves now to minimize business taxes when it’s time to file. Here are three key questions you need to ask your CPA before the end of the year.

      1. Do I Have the Best Business Tax Classification?

      It is not too late to file an election to change your tax classification for the 2025 tax year. If you have not reviewed this yet, now is the time to assess if you need to update your classification before year end. The IRS provides basic procedures to allow you to file a late election to update your tax status for the current tax year. This is an important question you need to ask your CPA before the end of the year.

      The key determinant for tax classification is the businesses profit. Your best tax status can change from year-to-year based on its profitability. Plus, tax law changes can impact the optimal tax classification for this year. The One Big Beautiful Bill Act (OBBBA) made sweeping changes that may result in a better tax classification for your business. As a business owner, it is essential to be proactive and request recommendations from your tax advisor to ensure you’re taking full advantage of every tax-saving opportunity.

      Business owners who are taxed as a sole proprietorship and reported on form Schedule C should consider whether they would experience a lower tax burden with an election to be taxed as an S Corporation. Similarly, owners currently taxed as a Partnership may compensate their owners with guaranteed payments, which are subject to regular income tax and self-employment tax. Those partners could reduce their tax liability by electing to have their business taxed as an S corporation. Your CPA can advise you on reclassification options that can make a positive impact on your tax burden for this year.

      Business owners who are taxed as an S Corporation should also consider updating their tax classification. The OBBBA created permanence for the 21% lower corporate tax rate. This means businesses that were typically reported as partnerships or S corporations may be eligible for a lower tax rate as corporations than as pass-through entities.

      For example, the owner of a single-member organization taxed as an S Corporation with profits exceeding $104,000 would be subject to a 24% personal income tax rate. When taxed as a C Corporation, that same owner would be taxed at 21%. Keep in mind that this change does not affect your legal entity; it only changes how your business is taxed. Your CPA can advise you on the advantages of electing to update your tax classification from S Corporation to C Corporation this year, and if this will serve to reduce your tax burden.

      Historically, tax accountants have weighed the current year benefits of a tax classification change and the long-term impacts to advise you on the best status. Specifically, when electing to be taxed as a C Corporation, you must remain in that classification for five years. Your CPA must consider if the C corporation classification will serve to benefit you for that entire period and if any tax law changes could erode the benefits in the future. The current administration has committed to keeping the corporate tax rate at 21%; however, a future administration can exercise its authority to make changes to this policy. Tax elections made for the 2025 tax year ensures four of the five years are covered by the Trump Administration. A status change now, leaves limited exposure for tax rate changes to have a negative impact.

      2. Do I Need to Accelerate Business Spending Before Year-End?

      Tax returns are filed on a cash-basis. That means you only report income received before year-end and bills paid before year-end. Your CPA can advise you if it is advantageous to accelerate spending before year-end to maximize your business deductions and reduce the profit subjected to tax.

      For example, if you have plans to purchase heavy equipment or vehicles soon, it may be advantageous to complete those purchases before year-end to accelerate bonus depreciation for this tax year. Your CPA can advise you on the optimal amount of expenses to erode your tax liability for this year.

      Plus, if you intend to make significant charitable contributions over time, you can accelerate the deductions for charitable giving to minimize your taxes for this year. Setting up a donor advised fund (DAF) with your financial advisor. A DAF is essentially a charitable investment account where your contributions that are deductible in the year contributed, but allows you to distribute those funds to charitable organizations in your own timeline. Most financial institutions have a minimum initial contribution of $10,000, but there is no limit to the total amount you can contribute to a DAF. You can deduct DAF contributions up to a total of 60% of your AGI. If your income is $100,000 for the year, that means up to $60,000 in contributions to your DAF would be deductible.

      3. Am I on Track With Meeting My Tax Burden for the Year?

      The IRS is a pay-as-you-go system. In short, they require you to meet your tax obligations through the year and not later than January 15 of the following year. Business owners meet that obligation via payroll deductions from officers’ compensation and quarterly estimated tax payments. If you fall short of meeting this obligation, you may be subjected to penalties.

      The IRS assesses underpayment penalties on taxpayers who did not pay enough of their tax liability by year's end. You may face this penalty if you have not met either 90% of the tax shown on your current tax return or 100% of the tax on your previous year’s return. The amount of this penalty is based on three factors:

      • The amount of the underpayment
      • The period during which the tax was underpaid
      • The quarterly interest rate for underpayments is published by the IRS, which is the federal short-term rate plus 3% for individuals.

      As a business owner, your tax burden can fluctuate from year to year, so it is vital to assess in the final quarter of the year to ensure you have met a sufficient amount of your tax liability to avoid underpayment penalties.

      Finishing the Year Strong

      As you engage with your CPA to cover these questions, they will likely share other tax tips that you can take advantage of to ensure you minimize your tax liability for this year and future years. Asking the right questions of your CPA lets you keep your focus on finishing the year strong, with the confidence that you will have no surprises at tax time.

       

      This article was written by Cindy McGhee from Forbes and was legally licensed through the DiveMarketplace by Industry Dive. Please direct all licensing questions to legal@industrydive.com.

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