Year-End Tax Planning: The Moves That Only Work Before December 31

Most year-end tax moves stop working at 11:59 PM on December 31. A surprisingly large number of business owners don't start thinking about them until February. The gap between when planning needs to happen and when most people start is where most of the real money gets left on the table.

Year-end tax planning is not about finding deductions you missed — it is about timing. Cash-basis businesses control when income is recognized and when expenses are paid, which means a well-run Q4 conversation with your accountant can legitimately move five to six figures of taxable income between years, choose which retirement plan gets funded and in what amount, and lock in deductions that expire at midnight on the 31st. The moves are legal, straightforward, and almost entirely time-bound — which is precisely why procrastination costs real money.

Here are the moves that only work before December 31, and the ones that come with a later deadline than most owners realize:

• Timing income and expense — the cash-basis advantage. Cash-basis businesses report income when received and expenses when paid. That means an invoice you hold until January 2 does not hit this year's income. A check you write and mail before December 31 is a current-year expense even if it clears in January. The legitimate opportunity is not to defer all income indefinitely — it is to match recognition timing to the year where it produces the smallest tax impact. A year where income is unusually high benefits from deferral; a year where income is unusually low benefits from acceleration. Knowing which year you are in is the entire point of the Q4 projection.
• Equipment purchases before year-end — Section 179 and bonus depreciation. Equipment placed in service before December 31 qualifies for the current year's Section 179 deduction and remaining bonus depreciation. Equipment that arrives December 30 and is operational counts. Equipment sitting in the warehouse without being placed in service does not. The time to decide whether a planned capital purchase belongs in this year or next is Q4, not Q1 — because the deduction year is locked once the equipment is placed in service. For a profitable year, pulling a planned purchase into December can be worth tens of thousands in current-year tax reduction.
• Retirement plan contributions — what must be done by December 31 vs. what can wait. The deadlines are asset-specific and widely misunderstood. A SEP-IRA can be funded all the way through the tax filing deadline including extensions (October 15 for most sole proprietors and S-corp owners). A SIMPLE IRA requires the plan to have been established before October 1 of the plan year; employee contributions are capped at $16,500 in 2026. A Solo 401(k) requires the plan to be established by December 31 — even though contributions can be made until the filing deadline. The $70,000 combined limit (employee + employer) for a Solo 401(k) in 2026 makes it the highest-capacity deferral vehicle for self-employed individuals, but missing the December 31 establishment deadline eliminates it entirely for that year.
• The QBI deduction (Section 199A) and year-end optimization. The qualified business income deduction allows eligible pass-through owners to deduct up to 20% of qualified business income, subject to W-2 wage and capital limitations for service businesses above the threshold ($197,300 single / $394,600 married filing jointly in 2026). For owners in specified service trades — law, consulting, financial services, health — the deduction phases out entirely above the threshold. Owners near the threshold have meaningful planning opportunities: accelerating deductible retirement contributions to push QBI income below the phase-out range can preserve the deduction, which is itself worth 20% of business income. A $10,000 retirement contribution that reduces income by $10,000 can preserve a $40,000 QBI deduction — a 4:1 leverage ratio.
• Reasonable compensation review for S-corp owners before year-end. S-corp owners must take a reasonable salary, and that salary must be processed through payroll before year-end to be deductible in the current year. Owners who underpay themselves (to minimize payroll tax) risk IRS reclassification; owners who fail to run a year-end payroll catch-up miss the deduction entirely. The right number is a function of what a comparable employee in the same role would earn, documented clearly — and it should be reviewed annually as profitability changes, not set once and forgotten.
• Prepaying deductible expenses — what works and what doesn't. Cash-basis businesses can prepay certain expenses before year-end and deduct them currently: business insurance premiums, rent, subscriptions, professional dues, and supplies are generally deductible when paid. The 12-month rule allows prepayment of expenses that will be consumed within 12 months of the payment date or by the end of the following tax year, whichever is earlier. Prepaying rent for 24 months does not work — the excess beyond the 12-month rule must be deducted in the year consumed. Prepaying January's payroll in December does not work — wages are deductible when paid to the employee, not when the employer writes the check to a payroll service that holds them.
• Charitable contributions — C-corp vs. pass-through treatment. A C-corp can deduct charitable contributions up to 10% of taxable income. Cash contributions made before December 31 are deductible in the current year. A pass-through owner making charitable contributions from the business takes the deduction on their personal return — the business does not deduct it at the entity level. Appreciated stock or property donations from a C-corp are deductible at fair market value without recognizing the gain, which is a planning tool that pass-throughs cannot replicate as cleanly. For owners with appreciated securities, donating appreciated stock to a donor-advised fund before year-end allows a current-year deduction at full FMV while deferring grant timing.
• Timing bonuses to employees — the December 31 / March 15 rule. Accrual-basis C-corps can deduct employee bonuses accrued before year-end as long as they are paid within 2.5 months after year-end (March 15 for calendar-year entities). Cash-basis businesses — including most small S-corps — can only deduct bonuses when actually paid. This means a cash-basis business that wants a current-year bonus deduction must cut the checks before December 31. A C-corp on accrual has until March 15 to pay what it accrued. Knowing which rule applies before December prevents the common mistake of accruing bonuses on a cash-basis return and discovering they are not deductible until payment.

What it costs to skip year-end planning: retirement plans that cannot be established retroactively, QBI deductions lost to preventable income spikes, equipment deductions left in the wrong year, and an April 15 bill that would have been materially smaller with a Q4 conversation.

We work with business owners in Q4 to model the current year projection, identify the moves that still apply, and execute them before the December 31 deadline — not the week after.

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