By the fourth quarter, most of your 2026 tax bill is already set. What’s left is a short list of moves that only count if they happen by December 31: finalizing owner payroll, putting equipment in service, making 401(k) deferrals, and paying certain state taxes at the entity level. Other moves, like SEP-IRA contributions and your fourth-quarter estimated payment, have later deadlines. Knowing which is which keeps you from buying things you don’t need in a December panic, and from missing the few decisions that actually expire.
That’s the real work of year-end tax planning for small business owners: get a reliable profit estimate, sort every move by its true deadline, and act on the ones that change your bill. Here’s how we walk clients through it at AP CPA Advisors, including the 2026 rule changes most year-end checklists leave out.
Key takeaways
- Sort every move by its real deadline. Owner payroll items, equipment placed in service, and 401(k) salary deferrals generally have to happen by December 31. SEP-IRA and employer retirement contributions can usually wait until you file.
- Tax rates are now permanent, so shifting income or deductions between 2026 and 2027 depends on your own income outlook, not a scheduled rate change.
- 100% bonus depreciation is permanent too. Buy equipment when the business needs it, not because December is ending.
- If you own an S corp, confirm your salary, owner health insurance, and expense reimbursements before the last payroll of the year.
- Two compliance changes land in January: 1099-NEC reporting now starts at $2,000 for 2026 payments, and employers must report qualified overtime on 2026 W-2s.
- Every decision on this list gets better with clean books. Close through October or November before you plan.
In this article
- Year-end tax planning for small business owners starts with a projection
- What has to happen by December 31, and what can wait
- Timing income and expenses when rates aren’t changing
- Equipment: don’t buy what you don’t need
- Retirement contributions are still the biggest lever
- Watch the QBI deduction thresholds
- S corp owners: settle these before your last payroll
- State taxes and the pass-through entity tax election
- Charitable giving has new floors in 2026
- Two compliance changes to handle before January
- Start the conversation in October, not December
Year-end tax planning for small business owners starts with a projection
Every good year-end decision rests on one number: a realistic estimate of what the business will earn for the full year. Without it, you’re guessing whether you’re near a bracket edge, whether a deduction is worth more this year or next, and whether your estimated payments are on track.
Start by reconciling your books through October or November. Then project December, add any income you expect outside the business, and compare the result with last year. That projection answers most of the questions below. If your books are behind, catch them up first. Planning on stale numbers is how owners end up making purchases they didn’t need in a year the deduction barely helped. If you’d rather hand that part off, our bookkeeping team keeps clients’ books current every month, so this step takes days instead of weeks.
The projection also tells you where you stand on estimated taxes. To avoid an underpayment penalty, you generally need to have paid in at least 90% of this year’s tax or 100% of last year’s (110% if last year’s adjusted gross income was over $150,000). If you’re short and you’re on payroll through your own S corp, one tactic beats a catch-up estimated payment: increase the federal withholding on your December paycheck. The IRS treats withholding as paid evenly throughout the year, so it can cover earlier quarters in a way a January payment can’t. The fourth-quarter estimated tax payment for 2026 is due January 15, 2027.
What has to happen by December 31, and what can wait
A lot of year-end stress comes from treating everything as urgent. It isn’t. Here’s how the common moves line up for a calendar-year business:
| Move | Generally must be done by |
|---|---|
| Owner salary true-up, owner bonuses, and owner health insurance on the W-2 | Your last 2026 payroll |
| 401(k) salary deferrals | December 31, 2026, through payroll |
| Accountable plan reimbursements to owners | December 31, 2026 |
| Equipment you want to depreciate in 2026 | Placed in service by December 31, 2026 |
| Paying bills early or holding invoices (cash basis) | December 31, 2026 |
| Charitable gifts for 2026 | December 31, 2026 |
| Entity-level state tax payments you want deducted in 2026 | Paid by December 31, 2026 |
| Fourth-quarter estimated tax payment | January 15, 2027 |
| W-2s and 1099-NECs to workers and the IRS | February 1, 2027 |
| S corp election effective for 2027 | March 15, 2027 |
| SEP-IRA and employer retirement plan contributions | Your 2026 return due date, including extensions |
The bottom rows matter as much as the top ones. If cash is tight in December, a SEP-IRA contribution can wait until you file in 2027 and still count for 2026, which lets you fund it once you know your final numbers.
Timing income and expenses when rates aren’t changing
The 2025 tax law made the current individual tax brackets permanent, so no scheduled rate increase is pushing income one way or the other this year. The timing question is now personal: do you expect to be in a higher or lower bracket in 2027?
If 2026 is a strong year and 2027 looks similar or slower, the classic moves still work for cash-basis businesses. Send December invoices in early January, and pay bills, subscriptions, and supplier invoices before year-end. Prepaid expenses generally count this year as long as the benefit doesn’t extend more than 12 months or past the end of next year, so prepaying a year of software or insurance usually works. Prepaying three years usually doesn’t.
If 2027 looks bigger, say you’re expecting a large contract, an equipment sale, or a partner buyout, flip the logic and pull income into 2026 while you’re in the lower bracket.
Accrual-basis businesses have less room, since income counts when it’s earned. One useful exception: bonuses to non-owner employees that are fixed by December 31 and paid by March 15, 2027 can generally be deducted in 2026. That rule doesn’t extend to S corp owners, which we cover below.
Equipment: don’t buy what you don’t need
Two numbers make equipment one of the largest year-end levers. For 2026, Section 179 lets you expense up to $2,560,000 of qualifying purchases, phasing out once total purchases pass $4,090,000. And 100% bonus depreciation is now permanent for property acquired after January 19, 2025, so most equipment can be written off in full in the year you start using it (passenger vehicles have their own caps).
Three things trip owners up.
“Placed in service” means ready to use. Equipment you order in December, pay for in December, and install in January is a 2027 deduction. If the timing matters, confirm delivery and installation dates before you commit.
A deduction isn’t a discount. If you’re in the 24% federal bracket, a $60,000 machine you didn’t need saves roughly $14,400 in federal income tax (plus some self-employment tax if you’re not an S corp) and costs you $60,000. The purchase has to make sense before the tax savings do.
There’s no deadline pressure anymore. Bonus depreciation used to be phasing down, which gave owners a reason to buy early. That’s over. Buy when the business needs the asset, then decide which year you want the deduction in. In a low-income year, electing out of bonus depreciation and spreading the deduction over time can be the smarter move.
For smaller purchases, the de minimis safe harbor lets you expense items up to $2,500 each instead of tracking them as assets, which keeps laptops, tools, and office furniture off your depreciation schedule.
Retirement contributions are still the biggest lever
Retirement plans are the rare year-end move that cuts your tax bill and keeps the money yours. The 2026 limits give owners a lot of room: $24,500 in 401(k) salary deferrals, an extra $8,000 catch-up at age 50 or older ($11,250 if you’re 60 to 63), and up to $72,000 in combined employee and employer contributions before catch-ups.
The deadline depends on the type of contribution:
- 401(k) salary deferrals have to come out of pay you receive in 2026. For S corp owners, that means through payroll by December 31. Once the last paycheck is issued, the chance is gone.
- Employer contributions, like a profit-sharing contribution to your 401(k), can generally be made up to your business’s return due date, including extensions.
- SEP-IRA contributions of up to 25% of compensation (about 20% of net self-employment earnings for sole proprietors), capped at $72,000, can also wait until the return due date, including extensions.
If you have employees and no plan yet, a new plan may qualify for startup tax credits that cover much of the setup cost for the first three years. For high-income professional practices, a cash balance plan layered on a 401(k) can allow deductible contributions far above these limits. A new plan can generally be adopted as late as your filing deadline, but the design work takes weeks, so the conversation should start now.
Watch the QBI deduction thresholds
The qualified business income (QBI) deduction, which lets many owners of pass-through businesses deduct up to 20% of their business income, was made permanent in 2025. It’s also one of the easiest deductions to lose by a few thousand dollars.
For 2026, the limits kick in once taxable income passes $201,750 for single filers or $403,500 for joint filers, and phase in over the next $75,000 (single) or $150,000 (joint). For specified service businesses, including law, health care, accounting, and consulting, the deduction shrinks through that range and disappears above it. Other businesses face limits based on W-2 wages and property instead. There’s also a new $400 minimum deduction for owners with at least $1,000 of qualified business income from a business they materially participate in.
Here’s how that plays out. Say a married physician who owns her practice projects $433,500 of 2026 taxable income. She’s $30,000 into the $150,000 phase-out range, so only about 80% of her practice income still counts toward the deduction. If she moves an extra $30,000 into her retirement plan before the deadlines, she lowers her taxable income directly and gets back to the threshold, restoring most of the deduction she was losing. Few year-end moves pay twice like that.
That’s why owners of medical and legal practices near these thresholds should run the projection before December, not after.
S corp owners: settle these before your last payroll
If you operate as an S corporation, your final payroll of the year is a deadline in its own right. Four items to confirm before it runs:
Your salary. Your pay needs to hold up as reasonable compensation for the work you do. Too low and the IRS can reclassify distributions as wages, with back payroll taxes and penalties. Too high and you overpay Social Security and Medicare tax and shrink your QBI deduction. Adjusting it in December is simple. Fixing it after year-end can mean amended payroll filings.
Owner health insurance. If you own more than 2% of the S corp, the health insurance premiums the company pays for you need to be added to your W-2 wages. That’s what allows you to take the self-employed health insurance deduction on your personal return. Miss it, and you’re looking at a corrected W-2 or a lost deduction.
Expense reimbursements. Home office costs, business mileage in your personal car, and your cell phone should be reimbursed to you under an accountable plan. The company deducts the reimbursement, and it’s tax-free to you. If you pay these costs yourself and never get reimbursed, they generally aren’t deductible on your personal return at all.
Owner bonuses. An S corp can’t deduct a bonus to a shareholder-employee until it’s actually paid, even if the company uses accrual accounting. If you want the bonus in 2026, run it through payroll in 2026.
If you’re still deciding whether the S corp structure fits at all, year-end is the right time to revisit it. An election for 2027 is due by March 15, 2027, but payroll needs to be in place before your first 2027 paycheck. Our S corp vs LLC guide walks through when the switch pays off.
State taxes and the pass-through entity tax election
The federal cap on deducting state and local taxes rose to $40,400 for 2026, but it shrinks by 30 cents for every dollar of income above $505,000 and bottoms out at $10,000. For higher-earning owners, that phase-down takes back most of the increase.
A pass-through entity tax (PTET) election is the workaround. Your S corp or partnership pays the state income tax at the entity level and deducts it on the federal return, outside the individual cap, and you typically get a credit or exclusion on your personal state return. For owners above the phase-down range, the savings can be significant. Below it, the election can still help, especially if you take the standard deduction, but the math is closer and needs a projection.
Two year-end points matter here.
Timing. The entity generally deducts the tax in the year it’s paid. Ohio’s final 2026 estimated payment isn’t due until January 15, 2027, but a payment made then generally counts as a 2027 federal deduction. If you want it in 2026, pay by December 31.
Ohio specifics. Ohio’s version is filed on Form IT 4738 at a 3% rate. The election is made year by year; it must include every owner, and once the return is filed, it can’t be changed for that year. Whether it saves you money depends on your income and how it interacts with Ohio’s Business Income Deduction, so we model it before recommending it. If you operate in another state, the rules and payment dates differ, so check before assuming Ohio’s apply.
Charitable giving has new floors in 2026
If your business gives at year-end, the rules changed this year. C corporations can now deduct only the portion of charitable gifts that exceeds 1% of taxable income. Gifts made by an S corp or partnership pass through to your personal return, where itemizers can now deduct only the amount above 0.5% of adjusted gross income, and owners in the top 37% bracket get a deduction worth at most 35 cents on the dollar.
The practical response is bunching: combine two or three years of planned giving into one year, often through a donor-advised fund, so more of it clears the floor. If you don’t itemize, a new deduction allows up to $1,000 ($2,000 for joint filers) for cash gifts made directly to qualifying charities, though gifts to donor-advised funds don’t count toward it.
Two compliance changes to handle before January
Most year-end checklists stop at deductions. These two changes won’t lower your tax, but getting them wrong creates penalties and unhappy phone calls in February.
1099-NEC now starts at $2,000. For payments made in 2026, you generally file a Form 1099-NEC or 1099-MISC only when a contractor or vendor received $2,000 or more during the year, up from $600. The threshold is a yearly total per payee, so four $600 payments to one contractor still trigger a form. Some payments keep lower thresholds (royalties are still reportable at $10), and some states set their own rules. Keep collecting a W-9 from every contractor up front. You won’t know who crosses $2,000 until the year is over, and chasing tax IDs in late January is miserable.
Overtime now has its own W-2 code. Starting with 2026 W-2s, employers must report each overtime-eligible employee’s qualified overtime in Box 12 with code TT. Only the extra “half” of time-and-a-half pay counts, not the full overtime wage. The 2025 grace period is over, and the IRS updated its guidance in August 2026. Ask your payroll provider now whether your system has been tracking that premium separately since January. Reconstructing it in November is far easier than in February. Employers with tipped staff have a similar new code (TP) for tips.
If payroll isn’t your favorite part of running the business, our payroll team handles these filings for clients.
Start the conversation in October, not December
Good year-end tax planning for small business owners isn’t about finding a trick in the last week of December. It’s about knowing your numbers early enough to act on the moves that expire on December 31, and leaving the rest for when you file. The owners who get the most out of it call us in October or November, while there’s still time to adjust payroll, fund a plan, or time a purchase.
Every situation is different, and the moves above depend on your entity, your income, and your state, so treat this as a starting point rather than advice for your specific return. If you’d like a year-end projection and a clear list of what to do before December 31, we’d be glad to help.
Schedule a year-end planning consultation with AP CPA Advisors, or call us at (614) 696-5525.