As the year draws to a close, projecting your business income for this year and next can help you strategically time income and deductible expenses for the best tax outcome. Generally, it’s wise to defer taxes when possible — unless you expect to fall into a higher tax bracket next year.
While timing income and expenses is often easier for cash-basis taxpayers, accrual-basis taxpayers also have valuable opportunities to manage deductions effectively.
Review Incurred Expenses
The cornerstone of tax savings for accrual-basis taxpayers lies in accurately recording and recognizing expenses incurred in the current year — even if payment won’t occur until the following year.
By doing this, you can deduct those expenses on your 2025 federal tax return, reducing taxable income. Common deductible accrued expenses include:
- Commissions, salaries, and wages
- Payroll taxes
- Advertising and marketing costs
- Interest and finance charges
- Utilities
- Insurance premiums
- Property taxes
💡 Tip: You can also accelerate deductions by charging expenses to a credit card in 2025, even if you pay the bill later. This strategy benefits both cash- and accrual-basis taxpayers.
Look at Prepaid Expenses
Take time to review all prepaid expense accounts before year-end. Write off any prepaid items that have been fully used by December 31.
If you prepay insurance covering a period that begins in 2025 and ends in 2026, you may be able to deduct the full premium in 2025, provided you make the proper method election. This can offer a significant tax advantage in the current year.
Additional Tips to Consider
Before closing your books for 2025, review your accounts receivable and write off any uncollectible balances. This helps keep your records accurate and prevents overstating income.
Also, ensure that interest on shareholder loans has been properly paid and recorded.
Finally, consult with your tax advisor to explore other year-end strategies specific to your business. Proactive planning now can make a measurable difference in your 2025 tax liability.
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