’Tis the season for peppermint mochas, holiday playlists (whichever you celebrate) on repeat, and… looming tax bills. But small business owners don’t have to gift-wrap their hard-earned money for the IRS. There are smarter (and merrier) ways to reduce taxes.
Most business owners know the classic moves:
- Option 1: Keep W-2 income low, dodge self-employment taxes, and live on distributions.
- Option 2: Buy depreciable assets (hello, fancy new company SUV).
- Option 3: This option might just outshine your holiday lights: a business-sponsored qualified retirement plan.
With the right plan, business owners can direct money to themselves and their employees instead of Uncle Sam. Contributions count as business expenses, reducing taxable income at both the federal and state level. Think of it as a win-win — more savings for business owners, more benefits for their team, and less for the IRS Grinch.
When the Math Turns Merry
Many owners think their contributions will be small and the benefits won’t outweigh the costs. That’s where the magic happens — designing a plan that flips the script.
Here is the unwrapped tax gift one of our small S-Corporation business clients experienced:
The business contributed and spent $253,842 with their retirement plan. This sprinkled $51,235 across employees’ accounts and included $9,375 in costs. This means that $193,232 were contributions to the shareholders, generating $121,844 in tax savings! The shareholders effectively doubled their spend. Translation: They turned $60,610 of employee contributions and costs into a $121,844 tax break. That’s like finding an extra stocking stuffer (or three) you forgot you bought. It might not be the Red Ryder BB gun, Turbo Man, or the Nutcracker, but it is certainly the next best thing!
Solo Owners Sleigh It Even More
If it’s a one-person shop, it gets even better. Many entities can move money straight from their business checking into their own retirement account, deduct it as a business expense, and lower their Adjusted Gross Income (which is the case for partnerships and S-corps, as well). Lower AGI = extra benefits. Think of it like putting finances on a sugar rush without the crash.
Bonus: Tax Credits = Extra Cheer
Here’s where the end-of-2025 sparkle really kicks in — because who doesn’t love getting a little something extra from the IRS? Thanks to SECURE 2.0, employers can now unwrap a whole sleigh full of tax credits that make starting or enhancing a retirement plan downright joyful.
Startup and Admin Credit: Think of this as the holiday bonus from Uncle Sam. Small businesses can claim credits to cover up to 100% of plan setup and administrative costs for the first three years.
Employer Contribution Credit: Feeling generous? The IRS is too. Employers making contributions to their new plan can receive additional credits for those contributions.
Automatic Enrollment Credit: Employers can add a bow to their plan by automatically enrolling employees, and get even more credit (literally). This boosts plan participation and allows small business owners to receive a $500 annual credit (for the first three years) for making saving simple.
Military Spouse Credit: Show some year-round goodwill with this special incentive. Employers with participating military spouses in their retirement plan could receive additional credits — a small way to honor those who serve behind the scenes.
Bottom line? Between these merry new tax perks and the long-term benefits of offering a retirement plan, there’s never been a better time to spread financial cheer.
Beat the Clock with Retroactive Plans
Still scrambling to wrap up 2025? Don’t worry — you’ve got options. Retroactive plans allow business owners to establish an owner-only 401(k), profit sharing, cash balance, or defined benefit plan in 2026 for 2025. That’s right, they can travel back in time (financially speaking) and grab deductions for a year that’s already over. If only all holiday shopping worked this way.
Unwrap the Benefits: We Can Help
At EGPS, we don’t just design retirement plans — we sleigh them. Our consulting process evaluates every angle of costs and benefits, creating clear, data-driven strategies that maximize value for business owners and their teams. Interested in learning more about how tax credits, retroactive plan options, and expert plan design can reduce 2025 taxes and beyond? Fill out the form below and we’ll send you more information on the possibilities.
