Year-End Tax Planning Moves for Small Businesses (2026 Edition)

Most of what a small business can still do about its 2026 tax bill has to happen between now and December 31, and a few of the most valuable moves close even earlier. The trouble is that "year-end planning" usually arrives as a list of twenty things in no particular order, half of which do not apply to you. What follows is the order we work through with clients in October and November, starting with the items worth the most or expiring soonest.

One rule before the list: test every move against a projection of your 2026 income, not a guess. A deduction is worth your marginal rate and nothing more. If you will land in the 12% bracket this year and 24% next year, several of these moves should be done in reverse.

Step one: know your number

Get the books reconciled through September, or October if you are reading this in November, then estimate the rest of the year. For an S corporation, the projection gives you two numbers that drive everything else: the ordinary income headed for your K-1 and the W-2 salary you have paid yourself so far. For a sole proprietor or single-member LLC it is one number, Schedule C net profit, and it drives both income tax and self-employment tax.

That number tells you your marginal federal rate. Under the 2026 brackets in Rev. Proc. 2025-32, a married couple filing jointly is in the 12% bracket up to $100,800 of taxable income, 22% up to $211,400 and 24% up to $403,550; a single filer hits 22% at $50,400 and 24% at $105,700. Everything below is about moving deductions into high-rate years and income into low-rate years.

The Q4 checklist, in priority order

1. Catch up your estimated taxes. The fourth 2026 installment is due January 15, 2027. To avoid the underpayment penalty you need to have paid the lesser of 90% of your 2026 tax or 100% of your 2025 tax (110% if your 2025 adjusted gross income was over $150,000). If you are behind, an S corporation owner has a trick a sole proprietor does not: run extra federal withholding through a December paycheck. Withholding is treated as paid evenly through the year, so a December catch-up cures earlier quarters in a way an estimated payment cannot. Our estimated tax guide covers the safe harbor math.
2. Fund a retirement plan, and pick the right one. For 2026 the elective deferral limit is $24,500 (plus $8,000 catch-up at 50, or $11,250 at ages 60 to 63), and the combined employee-plus-employer limit is $72,000. A SEP-IRA is simpler but employer-only: 25% of compensation, and you can open and fund it as late as your extended return due date. A solo 401(k) adds the employee deferral on top, which is why it usually wins for owners with no employees. Deadlines differ by entity type; see the table below.
3. True up your S corporation salary. If your salary has been low all year relative to what the business earned, run the true-up through payroll before December 31, not as a distribution in January. Reasonable compensation is the number one S corporation audit issue; here is how we set it. A year-end bonus through payroll also raises the base for your 25% employer retirement contribution.
4. Put shareholder health insurance on the W-2. If the company paid health premiums for a more-than-2% S corporation shareholder, those premiums must be reported in Box 1 of the W-2 (not subject to Social Security or Medicare tax) for the shareholder to deduct them as self-employed health insurance. The IRS says so in Fact Sheet 2008-25. Tell your payroll provider in December; fixing it after W-2s are filed is painful.
5. Buy equipment you were already going to buy, and place it in service. Anything you planned to buy in early 2027 can be deducted in full in 2026 through 100% bonus depreciation or Section 179 (2026 limit $2,560,000), but only if it is delivered, installed and ready to use by December 31. An invoice dated December 30 for a machine that arrives January 8 is a 2027 deduction. Whether to expense all of it is a separate question: Section 179 vs. bonus depreciation.
6. Time income and expenses if you use the cash method. Cash-basis businesses report income when received and deduct expenses when paid. You can send December invoices in early January, but you cannot hold a check you already received; the IRS treats income as constructively received when it is available to you without restriction. On the expense side, a business credit card charge counts as paid the day you swipe, and under the 12-month rule you can prepay insurance, software or rent as long as the benefit does not extend beyond 12 months. Prepaying two years of anything does not work.
7. Put family on the payroll properly. Wages paid to your child under 18 by your sole proprietorship, or by a partnership owned only by the child's parents, are exempt from Social Security and Medicare taxes. With the 2026 single standard deduction at $16,100, a teenager doing real work can earn that much with no federal income tax, and the business deducts it. The exemption does not apply to corporations, so S corporation owners need a different structure.
8. Get W-9s now, because the 1099 threshold changed. For payments made in 2026, Forms 1099-NEC and 1099-MISC are required at $2,000 or more, up from $600. Collect a W-9 from every contractor before you pay the year's final invoice; a contractor who will not give you one is subject to 24% backup withholding. Forms are due January 31, 2027, a Sunday, so the practical deadline is Monday, February 1. Details are in our 1099-NEC filing guide.
9. Decide on entity changes for 2027. An LLC that wants S corporation treatment for 2027 must file Form 2553 by March 15, 2027 (two months and 15 days into the year), though filing in December is cleaner. Missed a prior year? Late election relief runs up to three years and 75 days after the intended effective date.
10. Take BOI off the list. FinCEN's August 2026 final rule permanently exempts U.S.-formed companies and U.S. persons from beneficial ownership reporting; only certain foreign companies still file. Any letter telling you to file, or to pay someone to file, is a scam.

Retirement plan limits and deadlines for 2026

The limits come from IRS Notice 2025-67. For a self-employed owner, "compensation" for the employer contribution means net earnings after the deduction for half of self-employment tax and the contribution itself, which works out to about 20% of net profit rather than 25%. If you have employees, a SEP must contribute the same percentage for every eligible employee, which is where the simple plan gets expensive; a 401(k) with a safe harbor match is often the better design, but it needs to be set up well before year end.

Worked example: a single-owner S corporation

Palma Ceia Design is a Tampa interior design firm taxed as an S corporation with one owner, a single filer, and no employees. Revenue is $620,000. In October the projection shows $120,000 of ordinary business income for 2026 after the owner's $75,000 salary. With no planning: $195,000 of income, a $24,000 QBI deduction, the $16,100 standard deduction, taxable income of $154,900 and tax of $29,774, with the top dollars taxed at 24%.

Three moves, all done by December 31: the owner adopts a solo 401(k) and defers the full $24,500 through December payroll; the company makes the maximum employer contribution of 25% of the $75,000 salary, $18,750; and it buys and installs the $28,000 of rendering workstations it had scheduled for February, expensing them in full.

The savings are $14,602, and $43,250 of the $71,250 that produced them is now in the owner's retirement account. The equipment was going to be bought anyway; moving it ten weeks earlier simply put the deduction in a 24% year. Two things the table shows: the QBI deduction fell by $9,350, which is the hidden cost of every business deduction for a pass-through owner, and the owner's Social Security and Medicare taxes did not change at all, because 401(k) deferrals reduce income tax but not FICA. Had the owner instead taken a $24,500 distribution and called it a "retirement contribution," none of this would have worked.

What usually goes wrong

The classic mistake is buying things you do not need because "it's deductible." A $40,000 truck the business does not need saves $9,600 at a 24% rate and costs $30,400 of real cash. Spending a dollar to save 24 cents is not a strategy. The same goes for prepaying expenses you would not otherwise prepay: it moves a deduction, it does not create one, and next year you will be short that deduction when you may be in a higher bracket.

The second cluster involves deadlines that are earlier than people think. A solo 401(k) deferral for an S corporation owner has to run through payroll by December 31; there is no January fix. Health insurance left off the W-2 turns a deductible premium into a nondeductible one. And equipment "bought" in December but placed in service in January is the most common reason a projected refund turns into a balance due.

When to get help

If your 2026 profit will be meaningfully different from 2025 in either direction, the projection is worth doing with someone who can run the retirement, salary and depreciation numbers together, because each one changes the others. That is the core of our tax planning and preparation engagement: a November projection, a short list of moves with dollar values attached, and the payroll and plan paperwork done in time. For the payroll-driven items, our payroll, W-2 and 1099 support handles the December true-ups and January filings.

None of it works on unreconciled books, so if your QuickBooks is months behind, that is the first job. Either way, the conversation is short: request a 20-minute fit call and bring your year-to-date profit and loss.

Jenny Gao, CPA, EA

Founder of Balance Partners. Florida-licensed CPA and IRS Enrolled Agent with more than a decade of accounting and tax experience. Jenny writes and reviews every guide on this site. About Jenny

This article is general educational information for U.S. business owners and is not accounting, tax, legal, payroll or financial advice for your situation. Rules change and vary by entity, state and facts. Balance Partners, LLC does not provide audit, review or other attest services. Last reviewed September 14, 2026.