9 Year-End Tax Planning Moves Small-Business Owners Should Make Now

Key Summary

• Proactive Year-End Planning is Essential: Small-business owners should evaluate their tax strategies well before December 31—factoring in current rates, permanent QBI deductions, and 100% bonus depreciation—to improve cash flow and avoid unpleasant surprises.
• Key Strategies Can Lower Tax Liability: Maximizing tax efficiency involves building accurate 2026 tax estimates, optimizing entity and compensation structures, taking advantage of higher retirement contribution limits, carefully timing equipment purchases, and cleaning up books.
• Coordination Prevents Missed Opportunities: Aligning business decisions with personal financial goals, utilizing accountable plans, and consulting with a CPA or tax-planning CFP® professional helps ensure owners keep as much hard-earned income as legally possible.

For a successful small-business owner, taxes are not merely a spring filing exercise. The most valuable planning often happens before December 31, while there is still time to adjust compensation, fund benefits, accelerate deductions, and avoid an unpleasant cash-flow surprise.

Year-end 2026 deserves special attention. Federal tax rates remain in place, the qualified business income deduction is now permanent, and 100% bonus depreciation has returned for qualifying property. Retirement-plan limits are also higher, creating valuable opportunities for owners who act before key deadlines.

The right move depends on your entity, cash flow, employees, state, and long-term goals. Use these eight strategies as a discussion guide for your CPA and tax-planning Certified Financial Planner™ professional, not as a reason to spend money solely for a deduction.

Small business owners make up the majority of America’s “everyday millionaires,” normal people who earn a nice living and build substantial net worths. Building a multi-million-dollar net worth doesn’t just happen; it takes work. The tax code favors small business owners (even though it doesn’t feel that way when paying your taxes). You’ve worked hard to build your business; now take a little extra time to make sure you keep as much of your hard-earned income as legally possible.

1. Build a Reliable 2026 Tax Estimate

Start with current bookkeeping, not last year’s return. Project revenue, deductible expenses, owner compensation, investment income, retirement contributions, and major transactions through December 31. Then estimate both federal and state liabilities.

Self-employed taxpayers generally need to make estimated tax payments when they expect to owe at least $1,000. A common federal safe harbor is paying at least 90% of current-year tax or 100% of prior-year tax, 110% for certain higher-income taxpayers. Because uneven income may call for the annualized-income method, ask your tax professional to review payment timing rather than simply dividing last year’s bill by four.

2. Revisit Your Entity and Compensation Strategy

Your business structure affects payroll taxes, administrative costs, liability protection, retirement-plan design, and how profits reach your personal return. A sole proprietorship may be perfectly reasonable for a newer or lower-profit business, while an S corporation can become attractive when consistently higher profits justify payroll, bookkeeping, and tax-return costs.

An S corporation is not a magic tax loophole. Owner-employees must receive reasonable compensation, and artificially low wages can invite scrutiny. C corporations may suit businesses that retain earnings or seek outside investors, but potential double taxation matters. Review your entity every few years, and whenever profits, ownership, hiring, or exit plans materially change.

3. Maximize the Right Retirement Plan

For 2026, the employee deferral limit for a 401(k) is $24,500. The standard age-50 catch-up is $8,000, while eligible participants ages 60 through 63 may use the larger $11,250 catch-up. Total defined-contribution plan additions generally can reach $72,000 before catch-up contributions. These numbers double if your spouse also works in the business.

A SEP-IRA can be simple, but contributions generally cannot exceed the lesser of the applicable compensation percentage or $72,000 for 2026, and there is no SEP catch-up. A solo 401(k) may offer more flexibility because an owner can contribute as both employee and employer. If a spouse legitimately works in the business, the plan may cover that spouse as well.

Owners with strong, predictable cash flow may be able to combine a 401(k) with a cash balance pension plan and potentially shelter far more. Plan design, employee coverage, funding commitments, and deadlines are complex, so begin the conversation well before year-end. Beginning in 2026, participants whose prior-year FICA wages from the employer sponsoring the plan exceeded $150,000 generally must make catch-up contributions on a Roth basis, subject to applicable plan and transition rules.

4. Protect Your Qualified Business Income Deduction

The Section 199A qualified business income deduction is now permanent and may allow eligible owners of pass-through businesses to deduct up to 20% of qualified business income. It can apply to sole proprietorships, partnerships, S corporations, and certain trusts, but not to C-corporation income or wages earned as an employee.

The calculation becomes more restrictive at higher taxable-income levels, especially for specified service businesses such as law, accounting, consulting, health, and financial services. W-2 wages, qualified property, retirement contributions, and the timing of income and deductions can all affect the result. A deduction that lowers ordinary income may also reduce QBI, so model the combined impact rather than optimizing one line in isolation.

5. Time Equipment Purchases Carefully

Qualifying business property acquired and placed in service after January 19, 2025, may generally be eligible for 100% bonus depreciation, although transition rules can apply to property acquired earlier. The 2026 Section 179 limit is $2.56 million, with the deduction phasing out when qualifying purchases exceed $4.09 million. Section 179 is generally limited by business taxable income, while bonus depreciation can potentially create a loss.

“Placed in service” is the key phrase. Ordering equipment in December is not enough if it is not ready and available for business use until 2027. State rules may also differ from federal treatment. Most importantly, spending $100,000 to save a fraction of that amount in taxes still leaves you with less cash. Buy assets because the business needs them, then choose the most useful recovery method.

6. Capture Home-Office and Reimbursement Deductions

If you are self-employed and use part of your home regularly and exclusively as your principal place of business, you may qualify for the home-office deduction. The simplified method remains $5 per square foot for up to 300 square feet, for a maximum deduction of $1,500. The actual-expense method may produce a larger deduction but requires more records and can involve depreciation consequences.

S-corporation owners generally should not casually deduct home-office costs on Schedule C. (You will want to take the home office tax deduction on your S-Corp tax return). An accountable plan may allow the company to reimburse substantiated business expenses without treating the reimbursement as taxable wages. Review mileage, mobile phone, internet, professional dues, education, and business travel while documentation is still accessible.

7. Clean Up Your Books Before They Become a Tax Problem

Unreconciled accounts and missing receipts often cost more than professional bookkeeping. Reconcile bank and credit-card accounts, categorize owner draws and contributions, verify payroll filings, review accounts receivable, and collect Forms W-9 from vendors before January reporting deadlines.

Also review personal charges paid by the business, stale checks, shareholder loans, inventory, and fixed-asset records. Good books help your advisor spot deductions, substantiate them, and produce a useful projection. They also make financing, insurance reviews, and a future business sale easier.

8. Coordinate Income, Deductions and Charitable Giving

Cash-basis businesses may have some control over when income is received, and ordinary expenses are paid. If 2026 income is unusually high, accelerating legitimate deductions or deferring a discretionary invoice may help. If 2027 is likely to be higher, the opposite could be better. Do not manipulate constructive receipt rules, and remember that delaying income may only postpone-not eliminate-tax.

Coordinate business decisions with the rest of your household return. Capital gains, stock compensation, charitable gifts, required distributions, health savings account contributions, and state pass-through entity tax elections can interact with your marginal rate, QBI deduction, Medicare surtaxes, and cash flow. A donor-advised fund may help bunch several years of charitable giving into a high-income year, but the gift should fit your philanthropic plan first.

9. Look at Maximizing SALT Deductions

The state and local tax deduction was limited to $10,000 during the first Trump presidency. This is a laughably low number, and won’t even allow many Californians (or homeowners in other states) to deduct their property taxes, let alone their entire SALT payments each year. The SALT cap has been expanded to $40,000 or so, but this number is subject to income phase-outs.

For some of you reading this, various tax deductions may become doubly valuable. You will receive the tax savings from the actual tax deduction, as well as lowering your income enough to capture another dollar of SALT cap, further lowering your federal income taxes due.

There are a few other strategies to expand the SALT cap deduction; ask your tax preparer or tax-planning-focused CFP® professional if you are missing out on these valuable tax-saving strategies.

Turn Financial Planning Into Tax Savings Action

The best year-end tax strategy is not necessarily the one that creates the largest deduction. It is the one that supports your business, retirement, investment, and estate-planning goals while preserving enough liquidity to pay taxes and operate confidently.

Schedule a planning meeting before the holiday rush. Bring an up-to-date profit-and-loss statement, balance sheet, payroll report, prior-year return, estimated-payment history, and a list of major purchases or transactions under consideration. Ask for a written projection that compares alternatives and identifies the action, responsible person, and deadline for each recommendation.

When you are self-employed, proactive planning can make each dollar of profit more valuable. The goal is not to avoid paying every dollar of tax. It is to avoid preventable taxes, penalties, missed deductions, and rushed decisions — while using the tax code to move more money toward the future you are building.

Connect with an Old National Business Banker for more insights to help your business grow.

This article was written by David Rae from Forbes and was legally licensed through the DiveMarketplace by Industry Dive. Please direct all licensing questions to legal@industrydive.com.