Every January, we hear the same sentence from new clients: “I wish I’d talked to someone in November.” By the time most small business owners sit down with their tax preparer, the year is closed and almost every planning opportunity is gone. Your accountant can report what happened in 2026 — but only you, before December 31, can change it.
The good news is that year-end tax planning for small businesses doesn’t require complex strategies. It mostly comes down to clean books, a realistic profit estimate, and a handful of timing decisions. Below are nine practical moves to review with your bookkeeper or CPA in the next few weeks, with examples of how each one plays out in real numbers.
Why Year-End Tax Planning for Small Businesses Starts With Your Books
You can’t plan around a number you don’t know. Before you buy equipment or prepay rent, you need a reasonably accurate year-to-date profit and loss statement and a projection for the remaining weeks. If your books are three months behind, every decision below becomes a guess.
Here’s what “ready for planning” looks like by mid-November:
- All bank and credit card accounts reconciled through at least October 31 (see our guide to professional bookkeeping if you’re behind).
- Owner draws, loans and personal expenses separated from business expenses.
- Accounts receivable and accounts payable reviewed so you know what’s coming in and going out before year-end.
- Payroll reports reconciled to your general ledger, including owner wages for S corporations.
Once those pieces are in place, you can estimate your 2026 taxable income and decide which of the following moves actually make sense for you.
9 Year-End Tax Moves to Make Before December 31
1. Time your income and expenses (if you use cash-basis accounting)
Most small businesses file on the cash method, which means income counts when you receive it and expenses count when you pay them. That gives you some legitimate flexibility in the last few weeks of the year:
- Pay deductible bills early. Paying a December invoice from a supplier on December 28 instead of January 5 moves the deduction into 2026.
- Consider when you send invoices. Sending late-December invoices in early January can shift that income to 2027. Be careful, though: under the IRS “constructive receipt” rule, money that’s available to you — a check in hand or funds sitting in your payment processor — counts as received, even if you don’t deposit it.
- Understand the prepaid expense limits. The IRS generally allows a current deduction for prepaid expenses only when the benefit doesn’t extend beyond 12 months (or the end of the next tax year). Prepaying six months of rent can work; prepaying three years usually doesn’t.
If you’re unsure which method your business uses, our online accounting team can help you confirm it. Accrual-basis businesses have less flexibility here, because income and expenses are recorded when earned or incurred, not when cash moves.
2. Buy and place equipment in service before year-end
Equipment, computers, furniture and qualifying vehicles can often be deducted in full in the year they’re placed in service, rather than depreciated over five or seven years. Two provisions make this possible: the Section 179 deduction (with an annual limit above $2.5 million for 2026, phasing out for very large purchasers) and bonus depreciation, which the 2025 tax law restored to 100% for qualifying property acquired after January 19, 2025.
The key phrase is placed in service. Ordering a $40,000 machine on December 30 that arrives in February doesn’t create a 2026 deduction. It has to be delivered, set up and ready for use by December 31.
A word of caution we give every client: don’t buy something just for the write-off. If you’re in a combined 30% tax bracket (federal income tax plus self-employment tax, roughly), spending $40,000 saves you about $12,000 in tax — but you’re still out $28,000. Buy equipment because the business needs it; let the tax timing be the bonus. Our accounting team can help you record these purchases correctly on your fixed asset schedule.
3. Maximize retirement plan contributions
Retirement contributions are one of the few deductions that also build your personal wealth. For 2026, the IRS raised the employee deferral limit for 401(k) plans to $24,500, with higher catch-up amounts for workers age 50 and older.
- Solo 401(k): Great for owners with no employees, because you can contribute as both employee and employer. Setup and deferral-election deadlines have specific rules, so talk to your provider before December 31.
- SEP-IRA: Simpler to administer. It can generally be opened and funded up to your tax return due date, including extensions, which makes it a useful last-minute option.
- 401(k) with employees: If you already sponsor a plan, review whether an employer match or profit-sharing contribution makes sense this year.
4. Review S corporation owner salary and benefits
If your business is taxed as an S corporation, December is the time to confirm that you’ve paid yourself a reasonable salary through payroll. The IRS expects shareholder-employees to receive W-2 wages comparable to what they’d pay someone else to do the job before taking distributions.
Also check that health insurance premiums paid for a more-than-2% shareholder are included in their W-2 wages — a common year-end correction that has to be made in the final payroll run. Our online payroll services handle this adjustment as part of the year-end close.
5. Make your fourth-quarter estimated tax payment
Year-end planning isn’t only about lowering taxes — it’s also about avoiding penalties. The fourth-quarter estimated payment for 2026 is due January 15, 2027. If your income spiked this year, compare what you’ve paid against the IRS safe harbor rules (generally 100% of last year’s tax, or 110% if your prior-year adjusted gross income was over $150,000). Paying a little extra now can be cheaper than an underpayment penalty later.
6. Get your 1099 paperwork ready now
For payments made in 2026, the reporting threshold for Forms 1099-NEC and 1099-MISC rose from $600 to $2,000 under the 2025 tax law. That means fewer forms for many businesses — but you still need accurate vendor records.
- Request a Form W-9 from every contractor you paid this year who doesn’t have one on file.
- Run a vendor payment report in QuickBooks or Xero and flag anyone paid $2,000 or more by check, ACH or cash.
- Remember that payments made through card processors and platforms like PayPal are generally reported by the platform on Form 1099-K, not by you.
Forms 1099-NEC are due to recipients and the IRS by January 31 (or the next business day). Collecting W-9s in November beats chasing contractors in late January.
7. Clean up receivables and inventory
Accrual-basis businesses can generally deduct specific customer balances that have become worthless as bad debts — but only if you’ve documented your collection efforts and written the balance off in your books. Cash-basis businesses can’t, because that income was never recorded.
If you carry inventory, count it at year-end and identify damaged or obsolete items. Inventory that’s been destroyed, donated or sold below cost may support a write-down, but you’ll need records to back it up.
8. Confirm you’re positioned for the QBI deduction
The 20% qualified business income (QBI) deduction for pass-through businesses was made permanent in 2025. For owners with income above certain thresholds, the deduction can be limited by W-2 wages paid and the type of business. Your year-end salary, retirement contributions and equipment purchases all affect taxable income — so they also affect QBI. This is exactly why we recommend modeling these moves together rather than one at a time.
9. Organize documentation before the year closes
A deduction you can’t support is a deduction you may lose in an audit. Before December 31, make sure you have:
- A mileage log for any vehicle used for business (date, destination, purpose and miles).
- Receipts and business purpose notes for meals and travel.
- Measurements and expense records if you plan to claim a home office deduction.
- Signed contracts or invoices for any large prepaid expenses or equipment purchases.
A Quick Example: How Year-End Planning Changes the Numbers
Consider a Texas-based marketing consultancy, a single-member LLC on the cash method, projecting $160,000 in net profit for 2026. In November, the owner and her bookkeeper review the numbers and decide to:
- Replace two aging laptops and a monitor setup ($6,500) that the team needed anyway, delivered and in use by December 15.
- Open a SEP-IRA and plan a contribution after the books close.
- Pay $4,200 in December vendor invoices before year-end instead of in January.
Together, those moves could reduce taxable income by tens of thousands of dollars, with the exact SEP-IRA contribution depending on her final net self-employment earnings. None of it is aggressive — it’s simply good timing, made possible because her books were current in November. (This is a simplified illustration; your actual results depend on your full tax situation.)
When to Bring in a Professional
Everything above is general information, not tax advice for your specific situation. Tax rules change frequently, state rules vary, and some moves — like entity changes, large vehicle purchases or retirement plan setup — have consequences that last for years. We strongly recommend reviewing your plan with a CPA or enrolled agent, and checking current figures on IRS.gov before acting.
Where Ask For CPA helps is the foundation: getting your books reconciled and accurate so your tax advisor is planning with real numbers, not estimates. Whether you use QuickBooks or Xero, our team can catch you up, close out 2026 cleanly and hand your preparer a tax-ready file. You can see our transparent pricing here.
Frequently Asked Questions
When should small businesses start year-end tax planning?
Ideally in October or early November. That leaves enough time to get your books current, project full-year profit, and act on purchases, payroll changes or retirement contributions before December 31.
Can I deduct equipment I buy in December?
Yes, if it’s placed in service — delivered, installed and ready to use — by December 31. Under Section 179 and 100% bonus depreciation, qualifying equipment can often be deducted in full in the first year.
Is it smart to delay invoicing until January?
For cash-basis businesses, it can legally shift income into the next year. But it also delays cash flow, and payments you’ve already received or that are available to you count as income under the constructive receipt rule. Weigh the tax savings against your cash needs.
What’s the deadline to open a SEP-IRA for 2026?
A SEP-IRA can generally be established and funded up to your business’s tax return due date, including extensions. Solo 401(k) plans have different timing rules, so confirm with your plan provider and tax advisor.
Get Your Books Ready for Year-End
Tax planning only works when your numbers are right. If your books are behind or you’re not sure where your business stands for 2026, our virtual bookkeeping team can get you caught up before the year closes. Contact Ask For CPA today for a free consultation and start 2027 with clean, tax-ready books.
