End-of-Year Tax Strategies for Small Businesses in Texas

As 2025 comes to a close, Texas small business owners are navigating a tax environment shaped by both federal changes and state-specific rules. The One Big Beautiful Bill Act (OBBBA) has introduced new planning opportunities while also adding layers to compliance. While Texas businesses benefit from no corporate income tax, the franchise tax still applies to companies with annual revenue above $2.47 million, creating planning considerations that are unique to our state.

Year-end tax planning is about more than filing on time. When approached with intention, it helps business owners uncover deductions they may otherwise miss, avoid last-minute surprises, manage cash flow with confidence, and make informed decisions heading into the new year. Well-kept records and a clear view of available tax strategies can translate into real savings today and stronger positioning tomorrow.

The impact of smart tax planning shows up directly on your balance sheet. Dollars preserved through proper planning can be reinvested in equipment, people, inventory, or expansion. With 100% bonus depreciation reinstated and expanded Section 179 expensing available for 2025, decisions made before December 31 can meaningfully lower your tax bill while setting your business up for a productive year ahead.

Taking action before year-end allows business owners to:

• Capture deductions and credits that won’t be available after December 31
• Reduce tax exposure by timing income and expenses thoughtfully
• Stay aligned with federal requirements and Texas-specific obligations
• Gain clearer financial insight to support business planning
• Enter tax season organized and confident, with fewer surprises

Finding More Deductions Without Adding Complexity

Deductions remain one of the most effective ways for Texas small businesses to manage their tax position. Many opportunities are already part of day-to-day operations; it’s a matter of tracking them correctly and applying the rules consistently.

Most businesses can deduct a wide range of ordinary and necessary expenses tied to operations, including:

• Rent, utilities, office supplies, and other operating costs are deducted from business income
• Accounting, legal, and consulting fees that improve business performance and compliance
• Software subscriptions, technology tools, and professional training expenses that support growth
• Expenses that affect franchise tax calculations for businesses approaching the $2.47 million revenue threshold, even without a state income tax

Strong documentation is what turns everyday spending into defensible deductions. Consistent systems reduce errors and make tax preparation smoother:

• Maintain records throughout the year rather than reconstructing them at tax time
• Use accounting software with receipt capture to keep documentation centralized
• Log vehicle usage with dates, destinations, and business purpose
• Separate personal and business accounts to simplify reporting and support deduction claims

Timing also plays a role in how deductions affect your tax outcome. Strategic acceleration or deferral of expenses can shift savings into the current year:

• Prepay qualifying expenses under the 12-month rule, such as insurance or software licenses
• Purchase needed equipment or supplies before year-end to claim current-year deductions
• Consolidate charitable contributions into one year to strengthen itemized deductions
• Review inventory and document write-downs for damaged or obsolete stock

Some deduction categories deserve extra attention because small choices can change the outcome:

• Home office deductions can be calculated using the simplified method or actual expenses, depending on space and usage
• Vehicle expenses may be deducted using the 2025 standard mileage rate of 70¢ per mile or actual costs with proper records
• Equipment purchases may qualify for 100% bonus depreciation or Section 179 expensing up to $2.5 million, with phase-outs beginning at $4 million
• Repairs can often be deducted immediately, while improvements must be capitalized; proper classification matters

Using Tax Credits to Strengthen Your Bottom Line

Tax credits can significantly reduce what your business owes, making them an important part of year-end planning. Unlike deductions, credits reduce tax liability dollar for dollar.

Several federal credits may be available to Texas small businesses before year-end:

• The Research & Development Tax Credit for businesses improving products, processes, or software, with immediate expensing of qualified domestic R&D costs under the OBBB
• The Work Opportunity Tax Credit for hiring individuals from targeted groups, including veterans and those facing long-term unemployment
• The Small Business Health Care Tax Credit for employers with fewer than 25 full-time employees covering at least half of employee premiums
• The Retirement Plan Startup Credit, offering up to $5,000 annually to offset plan setup and administrative costs

Texas-specific programs and rules also influence credit planning:

• Businesses with annualized revenue at or below $2.47 million generally do not owe franchise tax for 2025
• Expanded property tax exemptions may reduce local tax burdens
• Workforce training investments may qualify for support through the Texas Skills Development Fund

Maximizing credit eligibility starts with preparation:

• Keep detailed records of qualifying activities and related expenses
• Track employee time spent on eligible projects, especially for R&D credits
• Confirm eligibility before year-end while adjustments are still possible
• Consider accelerating qualifying expenses when it makes financial sense

Because credits often involve detailed rules and calculations, professional guidance can make a measurable difference:

• Eligibility requirements can vary by industry and business structure
• Industry-specific credits are often overlooked without expert review
• Timing expenses correctly can increase credit value
• Many credits require specialized forms beyond standard tax software

The financial impact can be substantial. A business spending $50,000 on qualified R&D may reduce its tax bill by $10,000 through credits alone. When paired with tools like Section 179 expensing, the combined effect can materially lower total tax owed.

Practical Year-End Steps to Put Your Tax Strategy to Work

As December approaches, a focused review of your finances can uncover opportunities that make a difference before the year closes. Texas small business owners should prioritize a few key actions while there’s still time to adjust.

A strong year-end review typically includes:

• Reviewing profit and loss statements, balance sheets, and cash flow against projections to identify planning opportunities
• Evaluating estimated tax payments to avoid underpayment penalties, with 2025 returns due April 15, 2026
• Funding retirement plans such as SEP IRAs or Solo 401(k)s to reduce taxable income while building long-term security
• Making Health Savings Account contributions to take advantage of deductible contributions and tax-free growth
• Finalizing documentation by reconciling accounts, updating asset schedules, collecting W-9s, and documenting inventory counts
• Confirming Texas franchise tax obligations and preparing required reports based on revenue thresholds

Taking these steps before year-end can ease the tax filing process and create a clearer financial picture heading into 2026. Working with a trusted advisor helps ensure strategies align with your business goals and current regulations.

Planning with a Local Banking Partner

With year-end approaching, now is the time to fine-tune your tax strategy and prepare for the year ahead. Recent changes under the One Big Beautiful Bill Act, along with expanded depreciation and expensing options, present meaningful planning opportunities for Texas businesses. From managing deductions and payroll to aligning retirement and health strategies, thoughtful preparation can support both short-term savings and long-term growth.

At Bank of South Texas, we work alongside local business owners every day. Our team understands the regional tax landscape and the financial decisions that come with running a business in South Texas. We’re here to help you think through next steps, manage cash flow, and make informed choices that support your goals. Connect with Bank of South Texas to start planning with confidence as you head into the new year.