Before December 31: Tax Moves for Business Owners
The decisions that only work before December 31, the ones that can wait until the return is filed, and the order to take them in.
Reviewed by the Fairlight Accounting cross-border tax team — U.S. & Canadian Tax Desks
Year-end tax planning is the review of what can still be changed before December 31: timing of income and expenses, equipment placed in service, retirement plan setup, owner salary and reimbursements, and elections that must be made by year end. Some moves can wait until the return is filed; knowing which is which decides how the last quarter is spent.
On this page
What must happen by December 31?
| Move | Why the date matters |
|---|---|
| Place equipment in service | Section 179 and bonus depreciation require the asset to be in use, not just ordered |
| Adopt a 401(k) and make employee deferrals | Deferrals must come from pay earned in the year; the plan document must exist |
| Pay S corporation owner salary and run owner health premiums through payroll | Reasonable compensation and the health deduction depend on W-2 reporting |
| Reimburse owner expenses under the accountable plan | Stale reimbursements weaken the plan |
| Pay deductible expenses (cash method) | Including prepayments within the 12-month rule |
| Collect W-9s from contractors | Forms 1099-NEC are due January 31; for payments made in 2026 the reporting threshold is $2,000, up from $600 |
| Count inventory and write down obsolete stock | The year-end count sets cost of goods sold |
| Write off worthless receivables (accrual method) | Bad debts are deductible when they become worthless |
| Make state pass-through entity tax payments | Cash-method deduction requires payment in the year |
| Decide on entity changes effective January 1 | A new entity or LLC conversion is cleanest started January 1; an existing company's Form 2553 for a January 1 S election can still be filed by March 15 |
What can wait until the return?
Employer retirement contributions to SEP and profit-sharing plans (through the extended due date) and cash balance plans (generally by 8½ months after year end), health savings account contributions (through the original due date), and the choice between the standard mileage and actual expense methods for a vehicle's first year.
What should be reviewed, not just done?
- Estimated taxes. Compare payments to projected tax and the safe harbors. The penalty is figured separately for each payment period, so a January 15 payment covers only the last one; extra withholding before December 31 is treated as paid evenly through the year and can cover earlier shortfalls.
- Qualified business income thresholds. For 2026 the limits start at taxable income of $201,750 ($403,500 joint) and fully apply at $276,750 ($553,500 joint); owners near the range can manage taxable income with retirement contributions or equipment timing.
- Owner salary. Confirm the S corporation salary matches the year's profit and duties.
- Entity fit. Profit that has outgrown the sole proprietorship, or an S corporation that is now reinvesting heavily, may call for a change effective next year.
- State exposure. Remote employees, online sales, and travel can create filing obligations in new states.
When does deferring income backfire?
Deferring December billing into January helps only if next year's rate is the same or lower. A business expecting higher profit next year, or an owner moving into a higher bracket, may prefer to accelerate income into the current year.
Frequently asked questions
Can I buy equipment on December 31 and deduct it?
Yes, if it is delivered and ready for use that day. A deposit on equipment arriving in January does not count.
Should I prepay next year's expenses to cut this year's tax?
Only within the 12-month rule and only if it makes business sense; you are shifting a deduction, not creating one.
Is it too late to set up a retirement plan for this year?
A SEP — and a new profit-sharing or cash balance plan for employer contributions — can be set up through the extended due date. A SIMPLE IRA for the current year cannot (its deadline was October 1). A 401(k) for employee deferrals must exist by December 31, except that a sole proprietor with no employees can adopt a new solo 401(k) after year end and make first-year deferrals until the return's original due date.
Do I need to do anything about beneficial ownership reporting?
Not for a company formed in the United States. FinCEN's final rule of August 11, 2026 (effective August 14, 2026) made permanent the March 2025 exemption: U.S. companies no longer file beneficial ownership reports. Only certain foreign companies registered to do business in a state must report, and they do not report U.S. owners.
Official sources
The IRS explains: “Under the cash method, you generally deduct expenses in the tax year in which you actually pay them.” — Internal Revenue Service, Publication 334 (2025), Tax Guide for Small Business, https://www.irs.gov/publications/p334
The IRS explains: “You can set up a SIMPLE IRA plan effective on any date from January 1 through October 1 of a year, provided you didn't previously maintain a SIMPLE IRA plan.” — Internal Revenue Service, Publication 560 (2025), Retirement Plans for Small Business, https://www.irs.gov/publications/p560
Next step
Fairlight Accounting handles U.S. domestic, cross-border (U.S.–Canada), and international tax returns, plus bookkeeping, payroll, and CFO advisory. Our U.S. Tax Desk runs a fourth-quarter projection for every business client and lists the moves still open. See pricing or book a free fit call.
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