Year-End Tax Moves for Small Business Owners Before December 31

By the time you sit down to file, the 2026 tax year is closed. The return can only report what already happened. That is why the last six weeks of the year matter so much: they are the final window to time income and expenses, fund retirement accounts, buy equipment that is actually needed, and clean up the records that support every deduction.

This is not about spending money to save tax. A dollar spent to save thirty cents is still seventy cents gone. The goal is to make deliberate decisions with real numbers, using the rules that apply to 2026, so nothing is left on the table by accident.

1. Start with a year-to-date profit picture

Every year-end decision depends on knowing roughly where profit will land. Reconcile bank and card accounts through October or November, review the profit and loss statement, and estimate December. If the books are behind, catch them up first. Planning on unreconciled numbers usually leads to the wrong move.

Compare the projection with last year. A big jump in profit, a new owner, or a change in entity type are all signals to plan more carefully this year.

2. Time income and expenses on purpose

Most small businesses use the cash method, so income generally counts when it is received and expenses when they are paid. That creates some room to move. If 2026 is a high-income year and 2027 is expected to be lower, paying ordinary, necessary expenses in December, such as supplies, subscriptions or professional fees already due, can shift the deduction into 2026. The reverse can make sense if you expect higher income next year.

Keep it real. Prepaying far into the future has limits, and invoices should not be delayed in ways that hurt cash flow or customer relationships.

3. Equipment and depreciation: buy what you need, when you need it

The 2025 federal tax law made 100% bonus depreciation permanent for qualifying property acquired after January 19, 2025, and raised the Section 179 expensing limit to $2,560,000 for 2026 (reduced once qualifying purchases for the year top $4,090,000). For many small businesses, that means qualifying equipment, furniture, computers and certain vehicles placed in service by December 31 can be deducted in full in 2026 instead of over several years.

Two cautions. First, the asset generally has to be placed in service, not just ordered, before year-end. Second, a large deduction this year means no depreciation on that asset in later years, and state rules do not always follow the federal ones. Run the numbers before the purchase, not after.

4. Retirement contributions for the owner

Retirement plans are one of the few deductions that also build your own savings. A SEP-IRA can generally be opened and funded up to the tax filing deadline, including extensions. A sole owner with no employees can generally set up a new Solo 401(k) after year-end for its first year, but the deadlines for each type of contribution differ, so decide which plan fits before the year closes. If you already sponsor a plan for employees, confirm year-end contribution and testing deadlines with your provider.

5. Owner pay, payroll and S-corp items

If your business is taxed as an S corporation, make sure owner wages for 2026 are reasonable for the work performed and that they run through payroll before year-end. Health insurance premiums paid for more-than-2% shareholders generally need to be reported on the owner’s W-2. These details are easy to fix in December and hard to fix in February.

6. Personal-side changes that affect owners

Several individual provisions changed for 2025 through 2028, including new deductions for qualified tips, qualified overtime pay, certain car loan interest and an additional deduction for people 65 and older. The cap on the state and local tax deduction for itemizers was also raised, to $40,000 for 2025 with small annual increases and a phase-down at higher incomes. Starting in 2026, people who take the standard deduction can also deduct a limited amount of cash charitable gifts. If any of these apply to your household, gather the supporting documents now.

7. Clean up the records that support your deductions

A deduction is only as strong as its documentation. Before December 31, match receipts to large expenses, log business mileage (the IRS business rate is 72.5 cents per mile for January through June 2026 and 76 cents for July through December), confirm contractor W-9s are on file, and list any assets bought or sold. Clean records make filing faster and protect you if the IRS asks questions later.

Sources and educational notice

Sources: IRS: Working Families Tax Cuts for individuals and workers, IRS: 2026 standard mileage rate announcement, IRS: Retirement plans for self-employed people. This article is general educational content based on rules in effect as of its publication date. Specific tax, accounting, legal and compliance treatment depends on your facts; Mac Neal LLC can review your situation on a free call.