Year-End Tax Planning Checklist for Small Business Owners: 15 Strategies Before December 31

Year-end tax planning checklist:

1. Project current-year taxable income (do this first). Run a year-to-date P&L and estimate December income and expenses. You need this number before any other strategy makes sense. If income is higher than expected, lean toward acceleration strategies (more deductions now). If income is lower, consider deferring deductions to next year when they save more.

2. Equipment purchases (Section 179 / bonus depreciation). Purchase and PLACE IN SERVICE any needed equipment before December 31. The asset must be in use, not just ordered or paid for. Vehicles over 6,000 lbs GVWR, equipment, computers, software, and office furniture all qualify.

3. Retirement plan contributions. Solo 401(k) employee deferrals must be made by December 31 (for calendar-year S-Corps, the deferral election should be in place and the payroll processed). Employer contributions have until the filing deadline (including extensions). SEP IRA contributions have until the filing deadline. SIMPLE IRA deferrals by December 31.

4. S-Corp salary true-up. Ensure the owner’s reasonable compensation meets the annual target. If salary is below the planned amount, run a bonus payroll in December. The salary affects FICA, QBI deduction (QBI = K-1, not salary), and the W-2 wages limitation for QBI above the income threshold.

5. Estimated tax true-up. Calculate total tax liability and compare to payments made. Use the W-2 withholding strategy to cover any shortfall (increase December withholding to reach the safe harbor).

6. Prepay deductible expenses (cash basis). Pay January rent, insurance premiums, and other deductible expenses before December 31. This pulls the deduction into the current year. Note: prepaying more than 12 months ahead may be subject to the 12-month rule (Treas. Reg. 1.263(a)-4).

7. Collect W-9s from all contractors. January 31 is the 1099-NEC deadline. Collecting W-9s now prevents a January scramble and backup withholding obligations.

8. Review entity structure. If the S-Corp election makes sense for next year, file Form 2553 by March 15 (or consider a late election under Rev. Proc. 2013-30 for the current year if eligible).

9. Charitable contributions. Donate appreciated stock (avoid capital gains + get FMV deduction) or use a donor-advised fund to “bunch” multiple years of donations into one year. C-Corp deduction limit: 10% of taxable income. Individual: 60% of AGI for cash, 30% for appreciated property.

10. Write off bad debts. Identify uncollectible receivables and write them off before year-end. For cash-basis taxpayers, a bad debt deduction is only available if the income was previously included in income (which it was not, on cash basis). Accrual-basis taxpayers can deduct specifically identified bad debts.

11. Maximize the QBI deduction. Review SSTB status, W-2 wages, and UBIA. If above the income threshold, consider strategies to increase W-2 wages (hire a part-time employee) or UBIA (purchase qualified property).

12. Review inventory. Identify obsolete or damaged inventory and write it down to its lower of cost or market value. This creates a deduction.

13. Defer income (cash basis). Delay invoicing for December work until January. Do not deposit checks received in late December until January. Note: constructive receipt rules apply (if the income is available to you, it is taxable even if not deposited).

14. Pay bonuses to employees. Accrue and pay employee bonuses by December 31 (cash basis) or accrue by December 31 and pay by March 15 (accrual basis, non-related employees). Related-party bonuses (>50% shareholder-employees) must be paid by December 31 to be deductible in the current year (IRC 267).

15. Document, document, document. Update the mileage log, organize receipts, finalize the home office measurement, and photograph any assets placed in service. January is too late to reconstruct documentation for December transactions.