Tax planning strategies for year-end are the steps a business takes before its tax year closes to lower what it owes for that year. The core moves are timing income and expenses, buying equipment you already need, funding retirement plans, and getting records in order. For 2026, permanent 100% bonus depreciation and a $2.56 million Section 179 limit make equipment timing especially valuable.
The right mix depends on your accounting method, entity type, and cash position. Some moves work only for cash-basis businesses, and every deduction costs real cash before it saves anything. This guide covers what changed for 2026, which strategies fit your business, what a typical move costs in cash, and a month-by-month checklist your finance team can work from.
Key Takeaways
- The best tax planning strategies for year-end time income and deductions, and every move must be finished before your tax year closes to count.
- For 2026, businesses can expense up to $2.56 million under Section 179, and 100% bonus depreciation is now permanent (IRS Rev. Proc. 2025-32).
- Employees can defer up to $24,500 into a 401(k) for 2026, plus an $8,000 catch-up at age 50 or older (IRS).
- Deferring income and prepaying expenses generally work only for cash-basis businesses. Accrual-basis companies follow different timing rules.
- C corporations now deduct charitable gifts only above 1% of taxable income, so small scattered donations may produce no deduction at all.
- A deduction saves money at your marginal rate, not dollar for dollar. Spend only on things the business already needs.
- NOW CFO plans year-end moves around your cash flow and works with your CPA. You only pay for the hours you need.
What Changed for Year-End Tax Planning in 2026?
Year-end tax planning for 2026 looks different because the One Big Beautiful Bill Act, signed July 4, 2025, rewrote several business provisions. Most of the changes help: equipment write-offs grew, domestic research costs are deductible again, and contractor reporting got lighter. One change hurts corporate donors. The table below summarizes what matters most for a December plan.
Sources: IRS Rev. Proc. 2025-32; IRS Announcement 2026-11; IRS Form 1099 instructions; Pub. L. 119-21.
State rules can differ. Many states do not follow federal bonus depreciation, so confirm state treatment with your CPA before you buy.
Which Year-End Tax Strategies Lower Taxable Income the Most?
The strategies that lower taxable income the most are buying equipment you need, funding retirement plans, and shifting the timing of income and expenses. Each one works differently depending on your accounting method, so check the cash-basis and accrual-basis table below before acting on any of them.
Should You Prepay Expenses Before Year-End?
Prepaying expenses before year-end can pull deductions into the current year, within limits. Cash-basis businesses can generally deduct prepaid costs such as rent, insurance, or software subscriptions if the benefit lasts no more than 12 months, under the IRS 12-month rule described in IRS Publication 538. Accrual-basis businesses usually cannot deduct an expense until the service is performed. Prepay only what you would buy anyway.
When Does Deferring Income Lower Your Tax Bill?
Deferring income lowers your tax bill when you expect the same or a lower rate next year. For a cash-basis business, sending December invoices in early January generally moves that income into the next tax year. Accrual-basis businesses record income when it is earned, not when it is billed, so delaying invoices does little for them. Weigh the cash flow cost before you hold back any billing.
How Do Section 179 and Bonus Depreciation Work in 2026?
Section 179 and bonus depreciation both let a business deduct the cost of qualifying equipment in the year it goes into service, instead of depreciating it over several years. For 2026, Section 179 allows up to $2,560,000 in deductions, and 100% bonus depreciation is permanent for property acquired after January 19, 2025.
The equipment must be placed in service, not just ordered, by your year-end. Section 179 cannot create a loss, while bonus depreciation can, so many businesses apply Section 179 first and use bonus depreciation for the rest. Buy only what fits your capital plan. A write-off does not make an unneeded purchase free.
How Much Can You Contribute to Retirement Plans for 2026?
For 2026, employees can defer up to $24,500 into a 401(k), plus an $8,000 catch-up at age 50 or older and an $11,250 catch-up at ages 60 to 63. A SEP IRA allows employer contributions of up to 25% of compensation, capped at $72,000. Employer contributions are generally deductible. Deadlines to open a new plan differ by plan type, so set one up with your CPA before December.
Source: IRS cost-of-living adjustments for 2026.
How Should You Time Payroll, Inventory, and Charitable Giving at Year-End?
Payroll, inventory, and charitable giving each have year-end timing rules that decide which tax year the deduction lands in. Getting the timing right is usually a bookkeeping decision made in December, not a new expense.
Can You Deduct Year-End Bonuses You Pay Next Year?
An accrual-basis business can generally deduct 2026 bonuses it pays by March 15, 2027, if the bonus amounts are fixed by year-end. This is known as the 2½-month rule. Cash-basis businesses deduct bonuses only in the year they are paid. Bonuses to owners and related parties follow stricter rules, so review them with your CPA, and keep every bonus in line with the work performed. If your payroll and bookkeeping run on a monthly close, the accrual is a simple December journal entry.
How Do Inventory Write-Downs Reduce Taxable Income?
Writing down obsolete, damaged, or unsellable inventory increases cost of goods sold (COGS), which lowers the profit you pay tax on. Count inventory at year-end, document what is damaged or out of date, and record the write-down before the books close. The IRS guidance on inventory valuation explains when a write-down is allowed and what records support it.
How Does the New 1% Floor Change Corporate Charitable Giving?
Starting with 2026, a C corporation can deduct charitable contributions only to the extent they exceed 1% of its taxable income, and the 10% ceiling still applies. A company with $2 million of taxable income gets no deduction for the first $20,000 it gives. Planned giving bunched into one year can clear the floor, while small gifts spread across every year may not. Pass-through owners claim gifts on their personal returns, where a separate 0.5% floor applies to itemizers.
Which Year-End Strategies Fit Cash-Basis and Accrual-Basis Businesses?
Cash-basis businesses get the most flexibility from year-end timing, while accrual-basis businesses rely more on equipment purchases, retirement contributions, and accrued bonuses. Check your method on last year’s return before choosing a strategy.
What Does a Year-End Tax Move Actually Cost in Cash?
A year-end deduction saves money at your marginal rate, so every dollar you spend still costs most of a dollar in cash. A C corporation pays a flat 21% federal rate. If it buys $50,000 of equipment it already needed and expenses the full cost, it saves about $10,500 in federal tax, and the net cash cost is $39,500.
That purchase makes sense if the equipment was in next year’s plan anyway. It does not make sense if it drains the cash you need for January payroll and the fourth-quarter estimated payment. When we build year-end plans with clients, we start with the cash forecast, not the return. Our guide to cash flow management during year-end shows how to run that check.
What Compliance Steps Should You Finish Before Year-End?
Before year-end, reconcile your books, update vendor and mileage records for the 2026 rule changes, and gather the documents that support each deduction. Finishing these steps in December shortens filing season and makes any audit far easier to answer.
How Do the 2026 Mileage and 1099 Changes Affect Year-End Reporting?
The IRS raised the business mileage rate midyear, so 2026 has two rates: 72.5 cents per mile from January through June and 76 cents per mile from July through December. Split mileage logs and reimbursements at July 1. Separately, Forms 1099-NEC and 1099-MISC are now required only when payments to a payee reach $2,000 for 2026, up from $600. Confirm a W-9 is on file for every contractor before January.
How Should You Review Your Books Before Filing Season?
Review your books before filing season by reconciling every bank, credit card, and loan account, then comparing the income statement and balance sheet against your forecast. Fix misclassified expenses now, while the people who made the entries still remember them. A consistent chart of accounts from month to month makes the review faster each year. Our year-end review guide walks through the process.
What Documentation Do Deductions and Credits Require?
Every deduction and credit needs records that show the amount, the date, and the business purpose. Keep receipts, invoices, contracts, mileage logs, and asset purchase records with placed-in-service dates. Charitable gifts of $250 or more also need a written acknowledgment from the recipient. Organized records make audit preparation faster if the IRS or a lender asks questions.
How Does an Outsourced CFO Support Tax Planning Strategies for Year-End?
An outsourced CFO supports tax planning strategies for year-end by connecting each move to your cash forecast and budget, then coordinating the details with your CPA. The CFO builds the year-end income projection, models the cash cost of purchases and bonuses, and keeps the books clean enough for your tax preparer to act quickly. NOW CFO is not a CPA firm, so we work alongside your tax advisor rather than replacing one.
For the wider close process, see how an outsourced CFO supports fiscal year-end planning and our guide to closing out year-end accounts. If you are weighing the model itself, start with what an outsourced CFO does and the full range of CFO services.
Year-End Tax Planning Checklist: What to Do in October, November, and December
This checklist turns the tax planning strategies for year-end above into a timeline. It works best when it starts in October, because several moves need lead time. Use it with your CPA and finance team.
- January: File Forms 1099-NEC by February 1, 2027, since January 31 falls on a Sunday. Close December and start your 2027 annual operating plan with the year-end numbers in hand.
- October: Close the books through September and use your forecast and budget to project full-year profit. Confirm your accounting method and entity type. List equipment already in next year’s budget.
- November: Decide which purchases to pull forward and confirm delivery and installation dates. Set retirement contribution and bonus amounts. Check charitable plans against the new 1% corporate floor.
- December: Place purchased equipment in service. Pay or accrue bonuses. Make the fourth-quarter estimated payment, due December 15 for calendar-year corporations. Count inventory and record write-downs. Collect W-9s from 2026 contractors.
Benefits of Proactive Tax Planning Strategies for Year-End
Year-end tax planning is essential for businesses aiming to optimize their financial health and ensure compliance with tax regulations. Implementing strategic tax measures before the fiscal year concludes offers several significant benefits:
Reduced Risk of Penalties and Compliance Issues
Engaging in year-end tax planning ensures that all financial activities comply with current tax laws, minimizing the risk of audits and penalties. By reviewing financial records and ensuring accurate reporting, businesses can avoid common pitfalls that lead to compliance issues.
What Should You Do Before Your Tax Year Closes?
Before your tax year closes, project your full-year profit, confirm your accounting method, and decide which purchases, contributions, and bonuses belong in this year. Then check each move against your cash forecast and your CPA’s advice. Businesses that start in October have every option open. Businesses that start the last week of December have very few.
Frequently Asked Questions
When should a business start planning for year-end taxes?
A business should start in October. That leaves time to project full-year profit, order equipment that must be in service by year-end, set bonus and retirement amounts, and coordinate with your CPA. Waiting until late December usually limits you to whatever can be paid or placed in service in a few days.
Can I deduct equipment I buy in December?
Yes, if the equipment is placed in service before your tax year closes. Ordering or paying is not enough; it must be delivered, set up, and ready to use. For 2026, Section 179 and 100% bonus depreciation can let you deduct the full cost in the first year, subject to dollar limits and state rules.
Does deferring income work for every business?
No. Delaying invoices generally works only for cash-basis businesses, which report income when they receive payment. Accrual-basis businesses report income when it is earned, so the invoice date makes little difference. Deferral also shifts the bill to next year rather than erasing it, so it helps most when you expect a lower rate then.
What changed for business taxes in 2026?
For 2026, Section 179 expensing rose to $2.56 million, 100% bonus depreciation became permanent, and domestic research costs can be expensed again. The Form 1099 reporting threshold rose from $600 to $2,000, and the business mileage rate rose midyear to 76 cents. C corporations also face a new 1% floor on charitable deductions.
How does an outsourced CFO help with year-end taxes?
An outsourced CFO projects year-end profit, models the cash cost of each move, and keeps your books ready for your CPA. NOW CFO works alongside your tax preparer rather than replacing one. Engagements are flexible and sized to your needs, so you only pay for the hours you need.
This article is for informational purposes only and does not constitute financial, accounting, tax, or legal advice. Consult a qualified tax professional about your company’s specific situation before acting on any strategy described here. NOW CFO is not a CPA firm.
Tax figures reflect federal rules for tax year 2026 and are current as of the last update shown above. Limits change every year and state rules may differ. Links to third-party sites are provided for reference and do not constitute an endorsement.
