Year-End Tax Moves: How Tennessee Business Owners Can Keep More of Their Profits

Before we dive deeper into year-end tax strategies, it’s worth revisiting my most recent article, “Why Does Choosing the Right Business Structure Matter?” That piece is a great primer for understanding the basics of business entities, liability protection, and general tax considerations.

Now, let’s take it a step further: how to actually act on that knowledge before December 31 to maximize your profits and reduce taxes.

1. Leverage Pass-Through Entities Before Year-End

If your business is a sole proprietorship, partnership, or LLC (default), all profits flow through to your personal tax return. That means:

• Any deductible expenses you pay before December 31 reduce your taxable profit.

• Timing distributions strategically can lower self-employment taxes on income you actually need this year versus saving for the next.

  
  

Example: Prepaying business expenses — like office rent, supplies, or professional services — can reduce taxable profit, lowering both income and self-employment taxes.

2. S-Corp Salary Optimization

S-corporation owners have a unique opportunity: reasonable salaries are subject to payroll taxes, but distributions are not.

• Year-end adjustment: Consider adjusting your salary based on projected profits for 2025. Paying yourself too little could trigger IRS scrutiny, too much could increase payroll taxes unnecessarily.

• Combine this with the $50,000 standard excise deduction in Tennessee to reduce the taxable base.

  
  

Strategy: Running the numbers now — a small adjustment before December 31 — could save thousands.

3. C-Corp Considerations for Retained Earnings

C-corporations are double-taxed, but if your goal is growth and reinvestment, year-end planning can help:

• Evaluate retaining earnings versus paying dividends before year-end.

• Leverage Tennessee’s $500,000 franchise tax property exemption to reduce state tax liability on corporate assets.

  
  

Pro tip: Even for C-corps, prepaying deductible expenses can offset part of that 21% corporate tax rate.

4. Self-Employment Tax Timing

For LLCs and partnerships, remember that self-employment tax is calculated on all profits, whether distributed or not.

• Consider year-end distributions: If you don’t need all the cash in 2025, leaving profits in the company may defer personal income tax.

• Use Tennessee’s excise tax deduction strategically: lower net income now, reduce combined federal and state tax liability.

5. Quick Wins Before December 31

1. Prepay deductible expenses to reduce taxable income.

2. Adjust S-corp salaries for reasonable compensation.

3. Leverage Tennessee property and excise deductions.

4. Plan distributions and retained earnings for maximum tax efficiency.

5. Review entity elections — switching an LLC to S-corp status late in the year may be beneficial if your 2025 profits are high.

Year-End Takeaway

Taxes don’t have to feel like a surprise in April. With strategic year-end planning, Tennessee business owners can:

• Reduce self-employment taxes

• Maximize deductions

• Take advantage of new state tax breaks

• Align entity structure with profit goals

Bottom line: It’s not just about choosing the right business entity — it’s about timing your moves before the year ends to keep more of what you earn. Take a look at this graph for a quick run-through of what you need to know! As always, we’re here to help. Call us at (615) 370-2444 or visit our website to schedule a consultation today.