Year-End Tax Moves to Make Before December 31 (That Your Future Self Will Thank You For)
There is a peculiar tradition among business owners that takes place every December. Somewhere between holiday parties and trying to wrap up the year’s unfinished business, someone decides they need to spend a lot of money to save on taxes.
A new truck. Computers. Office furniture. That piece of equipment they’ve been eyeing since March. The reasoning usually goes something like this: “My accountant says I made too much money this year, so I need more write-offs.”
Well, congratulations on making too much money. That’s generally the idea behind owning a business.
Now, before you rush out to buy something you may or may not need, let’s talk about what you should be doing before December 31. Because while there are some legitimate opportunities to reduce your tax liability before the year ends, the smartest tax decisions aren’t necessarily the ones that generate the largest deductions. They’re the ones that make sense for your business.
1. Figure Out How Much Money You Actually Made
This sounds obvious. You might be surprised how many business owners don’t have a particularly good answer. They know sales are up. They know the bank account looks healthy. They might even know roughly what their profit margin is. But ask them to estimate their taxable income for the year, and suddenly things get a little fuzzy.
Your first order of business should be to review your financial statements and get a realistic projection of where you’ll finish 2026.
Look at revenue, expenses, outstanding receivables, and any significant transactions still expected before year-end. Did you have an unusually profitable year? Did you lose a major customer? Did you make a large investment that hasn’t been properly recorded? These aren’t minor details. They can change your tax strategy considerably.
And please, don’t confuse the balance in your checking account with your taxable income. The IRS certainly doesn’t.
2. Stop Buying Things Just Because They’re Tax Deductible
Let’s get this one out of the way. Yes, there are some attractive tax provisions available for businesses purchasing equipment and other qualifying assets.
For 2026, Section 179 allows eligible businesses to deduct up to $2.56 million in qualifying property purchases, subject to limitations. Additionally, current federal law generally permits 100% bonus depreciation on certain qualifying property acquired and placed in service after January 19, 2025.
Sounds terrific, doesn’t it? It can be. Particularly if you’re planning to purchase equipment that will make your business more productive.
But let’s say you spend $30,000 on equipment you don’t really need, simply because you want the deduction.
Assuming a 30% marginal tax rate and a full deduction, you’ve saved approximately $9,000 in taxes.
You’ve also spent $30,000.
I’ll let you do the math.
One more thing: For a 2026 depreciation deduction, the equipment generally must be placed in service by December 31. Simply ordering something and hoping it arrives in January doesn’t do the trick. My advice? Make business decisions for business reasons. Then work with your CPA to maximize the available tax benefits. Not the other way around.
3. Take Another Look at Your Retirement Contributions
Business owners have an interesting habit of investing everything back into their businesses.
New employees? Absolutely. Better equipment? Of course. Another location? Let’s talk. Their own retirement? Well, there’s always next year. The problem is that next year has a funny way of becoming five years from now.
Depending on your business structure and circumstances, retirement plans such as a SEP IRA, SIMPLE IRA, or 401(k) can provide valuable opportunities to save for retirement while potentially reducing your current tax liability. And if you have employees, retirement benefits may also help you attract and retain good people. Different plans have different deadlines for establishment, elections, and contributions. Some decisions need to be made before year-end, even though certain contributions can be made later. So don’t assume you can sort everything out when you’re filing your tax return in April.
Your future retired self would probably appreciate a little attention now.
4. Think About When Money Comes In—and Goes Out
Depending on whether your business uses cash-basis or accrual accounting, the timing of income and expenses can make a difference in your tax liability.
For some cash-basis businesses, paying legitimate expenses before December 31 may accelerate deductions into 2026.
Likewise, there may be circumstances where deferring income into the following year makes sense. Notice I said may. Tax planning isn’t quite as simple as pushing a few invoices into January and calling it a day. You need to consider your accounting method, your expected income next year, your tax bracket, and your cash-flow requirements.
If you’re expecting significantly higher income in 2027, deferring taxable income could actually work against you. And if paying expenses early leaves you short of cash in January, exactly what have you accomplished? The goal isn’t to manipulate the calendar for the sake of it. It’s to understand the financial consequences of your timing decisions.
5. Check Your Estimated Tax Payments
Here’s a scenario I’ve encountered in various forms over the years. A business owner has a fantastic year. Revenue is up, profits are strong, and everyone is feeling pretty good about themselves.
Then tax season arrives. Suddenly, that terrific year doesn’t feel quite so terrific.
The problem often isn’t the taxes themselves. It’s that nobody anticipated how much would be owed.
If your 2026 earnings are higher than expected, the estimated payments you’ve been making may no longer be sufficient. Now is the time to review your tax projection and determine whether additional payments or withholding adjustments are appropriate.
There are rules governing estimated tax payments, safe harbors, and underpayment penalties. Making a large payment at the end of the year doesn’t necessarily eliminate a penalty for amounts that should have been paid earlier. But discovering a potential shortfall in October is considerably better than discovering it when your return is being prepared.
At least you’ll have time to plan for it.
6. Review Compensation and Year-End Bonuses
If you have employees, you may be considering year-end bonuses, compensation adjustments, or additional retirement contributions. Good for you. Taking care of the people who help make your business successful is generally a worthwhile investment. Just be sure you understand the tax treatment and timing requirements.
For example, the deduction for a bonus may depend on when it’s paid, your accounting method, and other factors. There are also specific rules regarding payments to owners and related parties. And if you’re an S corporation owner, let’s talk about your salary.
The IRS expects shareholder-employees who perform services for their companies to receive reasonable compensation. Taking an unusually small salary while receiving substantial distributions can create problems. This is one of those areas where what seems like a clever tax strategy can become considerably less clever during an audit. Reviewing your payroll and compensation structure before year-end is a good idea. Making adjustments after the fact can be more complicated.
7. Remember That Paying Less Tax Isn’t Always the Best Financial Strategy
This may be the most important point in the entire article. I understand why business owners want to minimize their taxes. Nobody particularly enjoys writing a check to the IRS. But reducing your taxable income at all costs can be shortsighted. Let’s say you’re planning to apply for a business loan next year. Your lender is going to want to see financial statements demonstrating that your business is profitable and capable of repaying the debt. If you’ve spent the last several months doing everything imaginable to minimize your reported earnings, you may have made that conversation more difficult.
Or perhaps you’re thinking about expanding your business, hiring additional employees, or making a significant investment. Would you rather have another deduction or a stronger cash position? The answer depends on your circumstances. And that’s really the point.
Tax planning shouldn’t happen in isolation from the rest of your financial planning.
A strategy that saves one business owner thousands of dollars could be entirely inappropriate for another. The objective isn’t simply to pay the smallest possible tax bill. It’s to build a financially healthy, sustainable business that supports your long-term goals.
December 31 Is Closer Than You Think
There are plenty of tax-related decisions you can make after the end of the year. Certain retirement contributions, for example, may still be possible before your filing deadline. But many opportunities require action while the tax year is still open. And once December 31 has passed, some of those doors close.
So before you get swept up in the holidays and the inevitable scramble to finish everything before the new year, take a little time to review your financial position.
Better yet, sit down with your CPA and have a conversation about what you’re trying to accomplish—not just for the remainder of 2026, but for the years ahead.
At Prithi Daswani, CPA, we believe tax planning is part of a much bigger financial conversation. Understanding where your business stands, where it’s going, and what decisions will help get it there is just as important as identifying deductions. And if that conversation happens to save you a few thousand dollars in taxes, all the better.
Just don’t feel obligated to buy a new truck.
This article is intended for general informational purposes and does not constitute individualized tax advice. Tax rules and deadlines vary depending on your business structure and circumstances. Consult a qualified tax professional before making financial or tax-related decisions.