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Cut Your 2025 Tax Bill: Why Every Business Owner Should Consider a Profit-Sharing Plan Before the Deadline

  • Writer: Robert Schumann
    Robert Schumann
  • 7 days ago
  • 4 min read

Updated: 6 days ago

Time is running out to reduce your 2025 tax liability, but there's still a powerful strategy available. Setting up a profit-sharing plan for your business can deliver substantial tax savings while rewarding your employees. The best part? You have until your business's tax filing deadline to make it count for 2025.


There is no ongoing commitment.  Do it only when you need the tax savings!


Eye-level view of a business owner reviewing financial documents with a CPA
Business owner and CPA discussing profit-sharing plan benefits

What Is a Profit-Sharing Plan?


A profit-sharing plan is a retirement plan that allows businesses to contribute a portion of their profits to employees' retirement accounts. Unlike traditional retirement plans with fixed contributions, profit-sharing plans offer flexibility—you decide each year how much to contribute based on your business's performance.


Here's what makes them valuable:


Contributions are fully tax-deductible for your business, directly reducing your taxable income. You maintain control over contribution amounts, allowing you to adjust based on profitability. The plan benefits both you and your employees, building retirement savings while improving retention and morale.


Why Act Now: The 2025 Tax Filing Deadline Advantage


Your CPA or tax professional can help you establish and fund a profit-sharing plan up until your business's tax filing deadline for 2025, including extensions. This timing advantage means you can assess your full year's profits before deciding on contribution amounts.


Working with your CPA early provides several critical benefits. They'll help you determine the right plan type based on your business structure and calculate the maximum deductible contribution you can make. They'll also guide you through administrative requirements and coordinate the plan setup with your tax filing to maximize your business tax savings.


The IRS sets annual contribution limits—for 2024, the maximum is $66,000 or 100% of an employee's compensation, whichever is less. Your CPA will have the latest figures for 2025 and ensure you optimize within these limits.


How Profit-Sharing Plans Reduce Tax Year Burden


By contributing to a profit-sharing plan, your business reduces its taxable income for the year. For example, if your business earns $500,000 in profit and you contribute $50,000 to the plan, your taxable income drops to $450,000. This can translate into thousands of dollars saved in taxes.


The IRS sets limits on contributions, but these limits are generally high enough to allow substantial tax savings. For 2024, the maximum contribution limit is $66,000 or 100% of an employee’s compensation, whichever is less. These limits typically adjust annually, so your CPA will provide the latest figures for 2025.


Who Can Benefit?


Profit-sharing plans aren't exclusive to large corporations. Businesses of all sizes and structures can benefit, including:


• Sole proprietorships

• Partnerships

• S corporations

• C corporations

• LLCs taxed under any of these structures


Even if you employ just a few people, a profit-sharing plan can reduce your tax burden while building retirement security for your team.


How to Set Up Your Plan Before the Deadline


Step 1: Consult Your CPA Early


Begin the conversation well before your tax filing deadline. Your CPA or tax professional will assess your business's financial situation, explain the rules and deadlines, and help you determine if a profit-sharing plan aligns with your goals.


Step 2: Choose Your Plan Structure


Decide between a standalone profit-sharing plan or one combined with other retirement vehicles like a 401(k). Your CPA will recommend the best option based on your business size, cash flow, and long-term objectives.


Step 3: Create the Plan Document


Work with a retirement plan provider or attorney to draft the formal written plan document. This outlines eligibility requirements, contribution formulas, and distribution rules. Your CPA can coordinate this process.


Step 4: Communicate with Employees


Notify your employees about the new plan and explain how it works. Clear communication builds trust and demonstrates your commitment to their financial future.


Step 5: Make Your Contributions


Fund the plan by your business's tax filing deadline for 2025, including extensions. This flexibility allows you to finalize contribution amounts after evaluating your full year's performance.n.


Real-World Impact: A Small Business Example


Consider a small consulting firm with $300,000 in net profits for 2025. The owner works with their CPA to establish a profit-sharing plan and contributes $30,000 before the tax filing deadline. This contribution reduces taxable income to $270,000.


At a 25% federal tax rate, this saves the business approximately $7,500 in taxes. Additionally, the employees receive meaningful retirement contributions, boosting morale and loyalty—benefits that extend well beyond the immediate tax savings.



Why This Matters for Tax Year 2025


The closer you get to your business's tax filing deadline, the less time you have to establish and fund a profit-sharing plan. Starting the conversation with your CPA or tax professional now ensures you have adequate time to complete the setup process and make informed contribution decisions.


This isn't just about reducing this year's tax bill. A profit-sharing plan represents a strategic investment in your business's financial health and your employees' futures. It's a tool that rewards success while providing tangible tax advantages.


Close-up view of a calculator and tax documents on a desk
Calculator and tax documents representing tax savings from profit-sharing plans

Key Takeaways


  • Profit-sharing plans reduce taxable income for 2025 through tax-deductible contributions

  • You have until your business's tax filing deadline (including extensions) to establish and fund the plan

  • Plans work for businesses of all sizes and structures, not just large corporations

  • Contribution amounts are flexible and discretionary based on annual profitability

  • A CPA or tax professional is essential for maximizing benefits and ensuring compliance

  • The strategy provides dual benefits: immediate tax savings and long-term retirement security for you and your team


Don't let this opportunity pass. Contact your CPA or tax professional today to explore how a profit-sharing plan can reduce your 2025 tax burden and strengthen your business's financial position.



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