Year-End Tax Planning Small Business: Four Moves

by TFE Editor · 13 min read
Year-End Tax Planning Small Business: Four Moves

Year-end tax planning for a small business is the short list of moves still open before December 31, 2026. After that date a one-person business can only report the year. The moves that still change the bill are cash timing, equipment you place in service, and a retirement contribution you are allowed to deduct.

If you run that business with no employees, you are a solopreneur. A freestyle entrepreneur builds the business around a life, so this is a Tuesday-night job, not a corporate tax department. The profit you are estimating starts with what you charge. The rest of this cluster sits on Self-Employed Money.

US federal rules, as of November 5, 2026. General information, not tax, legal, or retirement advice. State rules differ. Run a large move past a CPA or an enrolled agent before you make it.

Know the 2026 number before you move

Every other decision hangs on likely taxable profit for 2026. Pull a year-to-date profit and loss, then add a realistic estimate for the rest of November and December. If the books are months behind, catch up first. Planning on a guess is how people buy a truck they did not need, to save tax they would not have owed.

Ask three questions. Is this a high year or a thin one? A bigger profit makes a deduction worth more now. A thin year can argue for the reverse: hold a discretionary expense, or bill sooner. How much is already paid in, counting estimates and any W-2 withholding? What is the gap? That gap is the plan. Legal cuts, once a CPA is in the room, are in avoiding the taxman. Which return the profit lands on, if the company is an LLC, is a separate choice: LLC basics for solopreneurs.

Time cash. Do not invent a deduction

Publication 538 (revised January 2022) says most individuals and many small businesses use the cash method, with an inventory exception for merchandise. You include income when you actually or constructively receive it, and you generally deduct an expense in the year you pay it. Income is constructively received when it is credited to your account or made available without restriction. You cannot hold a check to push the tax into next year.

  • Smaller 2026 bill. Send a late-December invoice in January so the payment arrives in 2027. That is a billing choice, not a backdated book. A check already in hand is 2026 income. If clients pay late, the cash problem is late payments from clients. Pay genuine expenses you were going to pay anyway. An expense paid in advance is deductible only in the year it applies, unless it meets the 12-month rule: the benefit must not extend beyond the earlier of 12 months after it begins, or the end of the next tax year. Publication 538’s examples are a one-year policy, deductible when paid, and a three-year policy, spread across the years it covers.
  • Unpaid invoices. Publication 334 says a cash-method taxpayer can’t deduct a bad debt for amounts never included in income. An accrual-method taxpayer who already reported the income is under a different rule. Writing off a dead receivable in the books does not, by itself, create a 2026 deduction.
  • Thin year. Invoice sooner and delay a discretionary expense. A deduction is a discount on money you spend. Spending a dollar to save a fraction of it in tax is a bad trade.

No IRS page states that a Schedule C expense is deductible on the credit-card swipe date. The cash-method rule they state is the year you pay. Keep the receipt.

Place the equipment in service, or skip the purchase

Topic no. 704 says you generally recover the cost of business property over time. Two exceptions matter only if you were going to buy the item anyway.

  • Section 179. You may elect to expense qualifying property in the year you place it in service. After the dollar cap, the deduction is limited to taxable income from the active conduct of a trade or business. Revenue Procedure 2025-32, for taxable years beginning in 2026, caps the expense election at $2,560,000. The cap shrinks, but not below zero, once qualifying property placed in service exceeds $4,090,000. The cost of an SUV that may be taken into account is capped at $32,000.
  • Bonus depreciation. Topic 704 says the special allowance is 40% for qualified property placed in service after December 31, 2024, and before January 20, 2025 (60% for long-production-period property and certain aircraft). For qualified property acquired and placed in service after January 19, 2025, it is 100%. It comes after any section 179 deduction and before other depreciation.

Buying is not the test. A laptop purchased on December 30 and left in the box has not been placed in service. Computers and peripheral equipment are not listed property. A vehicle is. Mixed business and personal use is depreciated only on the business portion.

The optional business mileage rate splits on July 1, 2026. The IRS standard mileage rates page lists 72.5 cents per mile for January 1 through June 30 and 76 cents for July 1 through December 31. Announcement 2026-11, in Internal Revenue Bulletin 2026-29 (July 13, 2026), sets 76 cents for business expenses paid or incurred on or after July 1, 2026, and leaves Notice 2026-10 in place before that date. The trip record has to show the date.

Say you run a design studio of one and meant to replace the laptop in February. Moving the purchase into December moves the deduction into 2026 only if the machine is in business use by December 31, and only if 2026 is the year that deduction is worth taking. That is a hypothetical, not a client of this site.

Fund the retirement account, then the January estimate

A retirement contribution is one of the few deductions that leaves the money in your own account. Publication 560’s worksheets still print 2025 blanks ($70,000, $23,500, and $350,000). Use the 2026 figures, then confirm the deposit date with the plan provider. How much you can move is the self-employed retirement quiz.

  • 401(k) deferral. IR-2025-111: $24,500 for 2026. Catch-up at age 50 and over is $8,000. Ages 60, 61, 62, and 63 keep a higher catch-up of $11,250. The limits page says the plan has to permit catch-up contributions.
  • Annual additions. The same page caps additions, not counting catch-up, at the lesser of 100% of compensation or $72,000. It states $80,000 including catch-up, or up to $83,250 for ages 60 to 63. Compensation counted is limited to $360,000. An employer’s deduction for a profit-sharing or money-purchase plan cannot exceed 25% of compensation paid or accrued to participating employees. Publication 560 says a self-employed owner reduces that limit for their own account.
  • SEP. Publication 560 caps a 2025 employee contribution at the lesser of 25% of compensation or $70,000, and says the compensation cap and the dollar cap rise to $360,000 and $72,000 in 2026. For the owner, that publication’s excess-contribution test is 20% of net earnings from self-employment, not 25% of profit. The rate table prints 0.200000 at a 25% plan rate. The footnote says the deduction for employer contributions, other than elective deferrals, can’t exceed 20% of net earnings figured without deducting contributions for yourself. Run the worksheet. Contributions, and the plan itself, can wait until the return due date, including extensions.
  • IRA. IR-2025-111: $7,500, plus $1,100 at age 50 and over. Publication 590-A (2025) says you may contribute by the filing due date, not including extensions. Its example is April 15, 2026, for a 2025 contribution. Read the 2026 return’s own due date before you treat a later calendar date as safe. A workplace plan can shrink or erase the traditional IRA deduction. The news release prints the 2026 phaseout ranges.

Dollar caps are not deadlines. The IRS issue snapshot says a deferral election generally cannot cover pay that is already available. The exception is narrow: someone who owns an entire unincorporated business, and is the only employee, may adopt a new 401(k) after year-end and, for the first year only, defer that prior year’s net earnings as late as the return due date, ignoring extensions. Profit-sharing contributions can still be deducted for the prior year if paid by the return due date, including extensions. A SIMPLE IRA cannot be opened in December for a business that already existed on October 1. Publication 560 limits that setup window to January 1 through October 1, or as soon as feasible if the business began after October 1.

Estimated tax is the individual test. Sole proprietors, partners, and S corporation shareholders generally pay if they expect to owe $1,000 or more. Form 1040-ES for 2026 uses the smaller of 90% of the 2026 tax or 100% of the tax on the 2025 return. If 2025 adjusted gross income was more than $150,000 ($75,000 if you file married filing separately for 2026), substitute 110%. Farming and fishing income of at least two-thirds of gross income skips that 110% swap. The fourth installment is due January 15, 2027, unless you file the 2026 return by February 1, 2027, and pay the balance with it. A Saturday, Sunday, or legal holiday moves the date to the next business day.

Paperwork that is still yours in January

  • Contractor TINs. The 1099-NEC instructions require the recipient’s taxpayer identification number. The 2026 Form 945 instructions keep backup withholding at 24% when it applies. Collect the Form W-9 while the project is fresh.
  • The 2026 threshold is $2,000. The IRS information-return page sets the 1099-NEC threshold at $600 for payments made before 2026 and $2,000 for payments made in 2026. File anyway if you withheld federal income tax under the backup-withholding rules. The December 2026 instructions say file Form 1099-NEC with the IRS on or before January 31. A weekend or legal holiday moves that date to the next business day. Ten or more information returns must be e-filed. Payment-card and third-party network payments are a Form 1099-K item, not a second 1099-NEC for the same dollars.
  • Reconcile the bank and the cards before you close the year. The profit figure in the first step is only as good as those statements.
  • The 20% pass-through deduction. The IRS page allows up to 20% of qualified business income, limited to 20% of taxable income minus net capital gain. For tax years beginning after 2025, the deduction is the greater of that limited amount or the minimum deduction for active qualified business income. Revenue Procedure 2025-32 states a $400 minimum and a $1,000 qualified-business-income figure for taxable years beginning after December 31, 2025. The June 17, 2026 draft Form 8995 instructions, marked not for filing, tie that $400 to at least $1,000 of qualified business income from trades in which you materially participate. Wages, S corporation reasonable compensation, and guaranteed payments do not count. Do not spend in December just to “use” the percentage.

The same revenue procedure sets 2026 thresholds at $403,500 for married filing jointly, $201,775 for married filing separately, and $201,750 for other returns. Phase-in range amounts are $553,500, $276,775, and $276,750. The draft instructions say Form 8995 at or under the threshold, and Form 8995-A above it. Consulting, health, law, accounting, and financial services are on its specified-service list, and they still qualify at or under the threshold. Above it, only a percentage qualifies through the phase-in ceiling. Confirm the form on the final 2026 instructions. That copy is still marked not for filing.

What you decide, what a tool drafts, what you check

In November 2026 a general writing assistant can turn a profit-and-loss export into a checklist or a note to your CPA. It will invent a deduction if you let it. Do not crown a product.

You decide A tool drafts You check
Whether 2026 is a high year, and whether to bill later or pay a real expense now A checklist from the numbers you paste in Constructive receipt and the 12-month rule in Publication 538
Whether a laptop or a vehicle will be in business use by December 31 A placed-in-service note for the file Topic 704 and the 2026 caps in Revenue Procedure 2025-32
Which account to fund, and whether the plan already exists Questions for the plan provider, using caps you supply The 2026 limits and the deferral deadline. No contribution from a guessed number

The takeaway

Book 30 minutes before mid-December and run this list.

  1. Print the year-to-date profit and loss, and estimate the full year.
  2. Decide whether to push unbilled income into 2027 or pay a real 2026 expense. Do not hold a check you already have. Do not prepay three years of a subscription to manufacture a deduction.
  3. Confirm equipment is in business use by December 31. Split business miles at July 1, 2026: 72.5 cents before that date, 76 cents on and after it.
  4. Fund the retirement account the deadline actually allows, or open the plan that deadline requires.
  5. Set aside the January 15, 2027 estimate, unless you will file and pay in full by February 1, 2027.
  6. Gather contractor TINs and 2026 totals against the $2,000 Form 1099-NEC line.

Then send your accountant the results. An hour of their time in December is worth more than the same hour in April.

Grab the free One-Person Business AI Stack checklist when you want a one-page list of what you decide, what software drafts, and what you still check yourself.

Sources

  • IRS, Publication 538, Accounting Periods and Methods (revised January 2022), fetched November 5, 2026. Cash method for most individuals and many small businesses, with an inventory exception. Constructive receipt, including the rule against holding checks. Expenses deducted in the year paid. The 12-month rule, with the one-year and three-year insurance examples.
  • IRS, Publication 334 (2025), Tax Guide for Small Business, fetched November 5, 2026. A cash-method taxpayer can’t deduct a bad debt for amounts never included in income. An accrual-method taxpayer can deduct an uncollectible receivable already included. What’s New: P.L. 119-21, section 70105, makes the 20% qualified business income deduction permanent.
  • IRS, Topic no. 704, Depreciation, fetched November 5, 2026. Section 179 in the year property is placed in service, limited to taxable income from the active conduct of a trade or business. Special allowance of 40% for qualified property placed in service after December 31, 2024, and before January 20, 2025, and 100% for qualified property acquired and placed in service after January 19, 2025. Computers are not listed property. Mixed-use property is depreciated only for the business portion.
  • IRS, Revenue Procedure 2025-32, fetched November 5, 2026. For taxable years beginning in 2026: section 179 limit $2,560,000, phaseout above $4,090,000, SUV cap $32,000. Qualified business income thresholds $403,500 (married filing jointly), $201,775 (married filing separately), and $201,750 (all other returns), with phase-in range amounts $553,500, $276,775, and $276,750. A $400 minimum deduction and a $1,000 qualified-business-income amount under section 199A(i), effective for taxable years beginning after December 31, 2025, not inflation-adjusted until taxable years beginning after 2026. Figures are as of October 9, 2025.
  • IRS, Standard mileage rates, fetched November 5, 2026. Business rate 72.5 cents for January 1 through June 30, 2026 (IR-2025-128) and 76 cents for July 1 through December 31, 2026 (IR-2026-29). Charity 14 cents. Medical and military moving 20.5 cents, then 23.5 cents.
  • IRS, Internal Revenue Bulletin 2026-29, Announcement 2026-11, July 13, 2026, fetched November 5, 2026. Business rate 76 cents per mile, and medical and moving 23.5 cents, for expenses paid or incurred on or after July 1, 2026. Notice 2026-10 continues to apply before that date. Charity remains 14 cents under section 170(i).
  • IRS, IR-2025-111, November 13, 2025, fetched November 5, 2026. 401(k) deferral $24,500. Catch-up $8,000, or $11,250 for ages 60, 61, 62, and 63. IRA $7,500, plus a $1,100 catch-up at age 50 and over. Traditional IRA phaseout ranges when a workplace plan covers the person.
  • IRS, Retirement topics: 401(k) and profit-sharing plan contribution limits, fetched November 5, 2026. Elective deferral $24,500. Annual additions the lesser of 100% of compensation or $72,000, stated as $80,000 including catch-up or up to $83,250 for ages 60 to 63. Compensation limit $360,000. Employer deduction cannot exceed 25% of compensation paid or accrued. Catch-up must be permitted by the plan.
  • IRS, Publication 560 (2025), Retirement Plans for Small Business, fetched November 5, 2026. SEP due date, including extensions. Owner excess-contribution test of 20% of net earnings from self-employment. Rate table: a 25% plan rate becomes 0.200000, and employer contributions other than elective deferrals can’t exceed 20% of net earnings figured without deducting contributions for yourself. The chapter raises the 2025 figures of $70,000 and $350,000 to $72,000 and $360,000 for 2026. The fetched worksheet still prints the 2025 blanks. SIMPLE IRA plans are set up from January 1 through October 1, or as soon as feasible if the employer comes into existence after October 1.
  • IRS, Issue snapshot: deductibility of employer contributions to a 401(k) plan made after year-end, fetched November 5, 2026. Retroactive elective deferrals are generally not allowed. First-year exception for a sole owner of an unincorporated business with no other employees, through the unextended return due date. Profit-sharing contributions can be treated as paid on the last day of the prior year if paid by the return due date, including extensions.
  • IRS, Publication 590-A (2025), Contributions to Individual Retirement Arrangements, fetched November 5, 2026. Traditional IRA contributions are due by the filing deadline, not including extensions. The example is April 15, 2026, for 2025 contributions.
  • IRS, Estimated taxes, fetched November 5, 2026. Sole proprietors, partners, and S corporation shareholders generally pay estimates if they expect to owe $1,000 or more.
  • IRS, 2026 Form 1040-ES, fetched November 5, 2026. The $1,000 test, the 90% / 100% comparison, the 110% substitution when 2025 AGI was more than $150,000 ($75,000 if married filing separately for 2026), the farming and fishing exception, the January 15, 2027 installment, the February 1, 2027 file-and-pay exception, and the weekend and legal-holiday rule.
  • IRS, Am I required to file a Form 1099 or other information return?, fetched November 5, 2026. Form 1099-NEC threshold $600 before 2026 and $2,000 for payments made in 2026. File regardless of amount if federal income tax was withheld under backup withholding. Ten or more information returns must be e-filed.
  • IRS, Instructions for Forms 1099-MISC and 1099-NEC (revised December 2026), fetched November 5, 2026. File Form 1099-NEC for at least $2,000 paid for services by someone who is not your employee, or for payments to an attorney. File with the IRS on or before January 31. Payment-card and third-party network payments are reported on Form 1099-K.
  • IRS, Instructions for Form 945 (2026), fetched November 5, 2026. Backup withholding rate remains 24%. For calendar year 2026, the aggregate threshold under sections 6041(a) and 6041A(a) rises from $600 to $2,000.
  • IRS, Qualified business income deduction, fetched November 5, 2026. Up to 20% of qualified business income, plus 20% of qualified REIT dividends and qualified PTP income, limited to 20% of taxable income minus net capital gain. For tax years beginning after 2025, the deduction is the greater of that limited amount or the minimum deduction for active qualified business income. Wages, S corporation reasonable compensation, and guaranteed payments are excluded.
  • IRS, 2026 Instructions for Form 8995, early-release draft dated June 17, 2026, cover sheet marked draft and not for filing, fetched November 5, 2026. Form 8995 at or under the threshold amounts. Form 8995-A above them. Specified-service fields and the phase-in ceilings of $553,500, $276,775, and $276,750. The $400 minimum if aggregate qualified business income is at least $1,000 from trades or businesses in which the taxpayer materially participates.