Where should you start?
With a projection. Take the books to the end of October or November, estimate December, and work out the likely 2026 profit and tax. Every other decision depends on whether this year's income is higher or lower than you expect next year's to be. Deductions are worth more in a higher-income year.
Can you time income and expenses?
If the business uses the cash method, income counts when received and expenses when paid. Paying deductible bills before December 31 moves the deduction into 2026. Sending invoices at the normal time in late December, rather than early, can move income into 2027. Two limits apply. Income you could have received but chose not to collect can still count as received in 2026. And prepaying expenses that cover periods well beyond the next year is generally not deductible up front.
Should you buy equipment now?
Only if the business needs it. Equipment placed in service by December 31, 2026 can usually be deducted in full for 2026, through Section 179 expensing, up to $2,560,000 for 2026, or 100% bonus depreciation for qualifying property acquired after January 19, 2025. "Placed in service" means ready and available for use, not merely ordered or paid for. See deductible business expenses.
See Section 179 vs bonus depreciation.
How much can you put into a retirement plan?
| Plan | 2026 limit | Timing |
|---|---|---|
| Solo 401(k), employee deferral | $24,500, plus $8,000 catch-up at 50 or older, or $11,250 at ages 60 to 63 | Plan and deferral elections need attention before year end |
| Solo 401(k), total employee and employer | $72,000, not counting catch-up | Employer contributions can generally be made up to the return due date |
| SEP IRA | 25% of compensation, up to $72,000 | Can be set up and funded up to the return due date, including extensions |
| Traditional or Roth IRA | $7,500 | Up to the April return due date |
For self-employed people, "compensation" for these plans is net self-employment earnings after the deduction for half of self-employment tax, so the percentage limits work out lower than they look. Contributions reduce income tax, not self-employment tax.
The two main plans are compared in SEP IRA vs Solo 401(k).
What should S corporation owners check?
- Reasonable salary through payroll by December 31. Salary cannot be paid retroactively after the year ends. See when an S corp election saves tax.
- Health insurance for owners owning more than 2% should be included in their W-2 wages to be deductible on their personal return.
- Expenses owners paid personally should be reimbursed under an accountable plan before year end.
Is your tax paid up?
The fourth 2026 estimated payment for individuals is due January 15, 2027. Compare what you have paid through withholding and estimates with the safe harbor: 100% of 2025's tax, or 110% if 2025 adjusted gross income was over $150,000. Topping up now can avoid an underpayment penalty. See estimated quarterly taxes.
Should the structure change for 2027?
Year end is the natural time to decide. An LLC that wants S corporation treatment from January 1, 2027 must file Form 2553 by March 15, 2027. A business that has outgrown sole proprietorship may want an LLC before the new year starts. See how LLCs are taxed.
What else belongs on the list?
- Qualified business income deduction. Many owners of pass-through businesses can deduct up to 20% of qualified business income, a deduction made permanent in 2025. Higher earners face limits based on wages paid and the type of business.
- Bad debts. Accrual-basis businesses can write off uncollectible invoices they have already reported as income.
- Inventory. Write down or dispose of damaged or obsolete stock before year end if you want the loss this year.
- State elections. Many states let partnerships and S corporations pay state income tax at the entity level, which can make it deductible federally. Deadlines vary.
- 1099 and W-2 preparation. Collect missing Forms W-9 now so February 1, 2027 filings are not delayed.
Owners of partnerships and S corporations should consider a pass-through entity tax election.
What happens after December 31?
The books are closed and the returns prepared. See the year-end bookkeeping checklist and US business tax deadlines.
Want a year-end review?
We project your 2026 tax from your books, show which moves actually save money, and handle the payroll, elections and estimates they need.
Questions people ask
What can a small business do before December 31 to reduce taxes?
Pay deductible bills, place needed equipment in service, fund retirement plans, run S corp owner salary through payroll, and make sure estimated tax is paid up to the safe harbor.
What is the Solo 401(k) limit for 2026?
$24,500 in employee deferrals, plus an $8,000 catch-up at 50 or older, with a total of $72,000 for employee and employer contributions, not counting catch-up.
Does buying equipment in December reduce 2026 taxes?
Usually, if the equipment is placed in service by December 31. Section 179 and 100% bonus depreciation allow a full deduction in most cases.
Can I set up a SEP IRA after year end?
Yes. A SEP can generally be set up and funded up to the due date of the return, including extensions.
Sources
Every fee, date and rule on this page was taken from these official and primary sources.
- IRS: 401(k) limit increases to $24,500 for 2026, IRA limit increases to $7,500
- IRS Revenue Procedure 2025-32, section 4.24: 2026 Section 179 limits
- Internal Revenue Code section 168(k): bonus depreciation, as amended by Public Law 119-21 (2025)
- Internal Revenue Code section 199A: qualified business income deduction
- IRS Publication 560: Retirement Plans for Small Business
- IRS: Estimated taxes
Rules and fees change. If you are reading this long after September 30, 2026, confirm the figures with the source before you rely on them.
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This guide is general information. It is not tax or legal advice for your situation.