Below is a 2025 “playbook” you can take to your CPA or EA and adapt to your own facts.It is organised so you can cherry-pick what applies to you today and keep an eye on ideas that become attractive as your business grows. (Everything here reflects federal and California rules in force as of 20 June 2025.)
1. Pick (or re-pick) the right business shell
| Option | Up-front cost | 2025 cash-flow pros | 2025 tax pros | Watch-outs |
|---|---|---|---|---|
| Sole prop(default) | none | simplest bookkeeping | full 20% §199A/QBI deduction still available through 31 Dec 2025 (irs.gov) | pays the full 15.3 % SE tax up to the Social-Security wage base ($176,100 in 2025) (ssa.gov) |
| LLC (disregarded) | ≈ $70 one-time + $800 CA LLC taxeach year (ftb.ca.gov) | liability shield; still file Schedule C | same as sole prop | CA “gross-receipts” LLC fee kicks in once receipts > $250 k |
| LLC taxed as an S-corp | $70 + $800 + payroll setup | can treat part of profit as dividends, cutting SE tax | avoids SE tax on the “reasonable comp” split; still gets QBI; eligible for CA PTE workaround | (1) payroll/admin; (2) 1.5 % CA S-corp tax; (3) must run wages through payroll |
Why many solopreneurs flip to an S-corp in 2025
California’s Pass-Through Entity (PTE) Elective Tax lets the S-corp pay 9.3 % tax on your share of profit, then hand you a full federal deduction and give you a state tax credit—an elegant SALT-cap workaround. Election window: 1 Jan–15 June 2025 for the current tax year. (ftb.ca.gov)
2. Manage when the income lands
- 2025 is the last year before most Tax Cuts & Jobs Act breaks sunset. If you expect higher individual rates in 2026, accelerate income (invoice early, convert to S-corp and pay a year-end bonus, exercise stock options) and defer deductions until 2026 when they’ll be worth more.
- Bonus depreciation drops to 40 % in 2025 (then 20 % in 2026). If you need equipment, buy and place it in service by 31 Dec 2025 to snag 40 % upfront plus Section 179 (limit $1.29 M). (thetaxadviser.com)
3. Slash taxable income with retirement & health buckets
| Account | 2025 max | Who should use it | Key tip |
|---|---|---|---|
| Solo 401(k) | $23,500 salary deferral + up to 25 % of net-SE income as “employer” gives $70,000 total, plus an extra catch-up for ages 60-63 of $11,250 (irs.gov, irs.gov) | high-profit, no employees | choose a provider that lets you do Roth andtraditional buckets |
| SEP-IRA | Lesser of 25 % of net-SE income or $70,000 (irs.gov) | when you have inconsistent cash flow or might hire staff soon | can be funded as late as the extended due date of your return |
| HSA(paired with HDHP) | $4,300 self / $8,550 family (irs.gov) | anyone with qualifying HDHP | grows triple-tax-free; keep receipts and let it ride as an extra IRA |
4. Harvest every deduction you’re entitled to
- Home-office, prorated utilities & property taxes – square-foot or actual-expense method.
- Vehicle – 2025 standard mileage rate plus tolls/parking or actual expenses with depreciation; choose the bigger write-off and revisit each year.
- Health insurance for self-employed – deduct premiums above-the-line.
- Accountable-plan reimbursements (if S-corp) – have the corp reimburse your personally paid expenses pre-tax.
- Education & conferences directly related to your trade.
- R&D or prototype costs – both federal and California R&D credits may apply if you are building proprietary tech or software. (ftb.ca.gov)
5. If you plan to hire, know the California credits
- New Employment Credit (NEC) – 35 % of qualified wages paid to full-time employees hired in designated census tracts; program sunsets after 31 Dec 2025. (ftb.ca.gov)
- California Competes – negotiated credit for bringing/expanding business in CA; worth exploring if you expect headcount or cap-ex to jump. (ftb.ca.gov)
6. Keep Uncle Sam (and Sacramento) happy
| Task | 2025 timing |
|---|---|
| Quarterly estimated taxes(federal + CA) | 15 Apr, 15 June, 15 Sept, 15 Jan 2026 |
| CA LLC $800 tax | 15th day of the 4th month of your LLC’s tax year using Form 3522 (ftb.ca.gov) |
| CA PTE elective payment | 50 % of prior-year elective tax (or $1,000) by 15 June 2025; remainder by the original due date of the return (ftb.ca.gov) |
| Payroll (if S-corp) | run at least quarterly; issue yourself a “reasonable” W-2 by 31 Dec |
Miss a deadline and California piles on penalties quickly—calendar them now.
7. Forecast your 2025 effective rate
- Federal brackets remain 10 % → 37 %; standard deduction $15,000 single / $30,000 MFJ (irs.gov, taxfoundation.org)
- Add 15.3 % SE tax up to $176,100, then 2.9 % Medicare on excess (plus 0.9 % NIIT over $200 k AGI). (ssa.gov)
- Layer CA personal tax (1 %–12.3 %) or S-corp 1.5 % + shareholder tax, net of PTE credit.
Run a projection in October so you can still adjust salary vs. distribution, top up retirement contributions, or prepay expenses before year-end.
8. Action checklist for Q3-Q4 2025
- Entity tune-up – decide now if you’ll elect S-corp by filing Form 2553 retroactive to 1 Jan 2025 (deadline 15 March, or late-relief letter).
- Open Solo 401(k)/SEP – establish by 31 Dec if you want 2025 deductions (funding can follow).
- Document mileage, home-office measurements, and equipment purchases – the audit trail is 90 % of winning an audit.
- Make first-year PTE payment (if elected) by 15 June; set a calendar reminder for the balance.
- Book a November meeting with your tax pro – arrive with YTD P&L and this playbook.
Final Word
Every strategy above is existing law—no wish-list items. But tax rules shift fast; revisit this list with your advisor before executing. Meanwhile, use it as a roadmap to keep more of what your solopreneur hustle earns in 2025.
