Year-End Tax Planning Checklist for Small Business Owners: 15 Strategies Before December 31
Year-end tax planning is the most time-sensitive opportunity in the small business tax calendar. Most strategies must be completed by December 31 to affect the current tax year. Some (like retirement plan establishment) have later deadlines, but the planning and funding decisions should be made before year-end. This checklist covers the 15 most impactful strategies, in priority order.
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 (used more than 50% for business; heavy SUVs have a Section 179 cap of $31,300 for 2025 and $32,000 for 2026), 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.
How do these strategies add up for a typical S-Corp owner?
Should I use 179 or bonus on a December equipment purchase?
For an S corp owner, either can write off equipment placed in service by December 31, and bonus is 100% for property acquired after January 19, 2025. Section 179 has an extra step: its limits apply at the S corp and again on your return, where the deduction can’t exceed your taxable income from active trades or businesses, including your salary.
Bonus applies automatically, so if you do nothing, that’s what you get, and opting out covers a whole class of property for the year. Section 179 lets you expense just part of an asset, which helps if you’re aiming at a target income, but only if you also elect out of bonus for that class, or bonus picks up the rest. If anything ends up on regular MACRS, watch the Q4 rule: when more than 40% of the year’s depreciable basis (excluding real property) goes into service in the last three months, the mid-quarter convention replaces the half-year convention. A vehicle over 6,000 pounds still needs more than 50% business use, and Section 179 on an SUV-type vehicle up to 14,000 pounds is capped at $32,000 for 2026.
How do I estimate my tax liability for the first year of business?
In your first year, you have no prior-year tax liability to base the safe harbor on, so you must estimate your current-year income. Start with projected gross revenue, subtract estimated deductible expenses, and apply the self-employment tax rate (15.3% on the first $168,600 of net earnings in 2024, 2.9% above that) plus your expected income tax bracket. A conservative approach is to set aside 25-30% of net profit for each quarterly payment. If your income is uncertain, pay a reasonable estimate for Q1 and adjust in Q2 once you have actual numbers. Overpayments are refunded or applied to next year’s estimated taxes.
Related guides:
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Year-End Tax Planning Quick Checklist: Retirement, Equipment, and QBI Strategies
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Year-End Tax Planning for Small Business Owners: 15 Strategies to Reduce Your Tax Bill
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Yarik Yarosh, CPA. "Year-End Tax Planning Checklist for Small Business Owners: 15 Strategies Before December 31." Blue Cloud CPA, September 5, 2026, updated September 23, 2026. https://bluecloudcpa.com/guides/small-business-tax-planning-year-end-checklist
This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.