Q4 Tax Planning Starts Now: 7 Moves to Make Before December 31

If your business had a profitable year, December 31 is more than the end of the calendar. It is the last day to take many actions that can affect your 2026 tax return.

That is why tax planning is more valuable than waiting for tax preparation. Tax preparation looks backward at what already happened. Tax planning gives you time to make informed decisions while options are still available.

Whether you operate as a sole proprietor, LLC, partnership, S corporation, or C corporation, now is the time to review your numbers and identify opportunities. Here are seven moves to consider before December 31, 2026.

Important: Tax rules depend on your business structure, income, accounting method, state, and individual circumstances. Use this checklist as a starting point and discuss specific decisions with your tax professional before acting.

1. Evaluate equipment purchases and year-end depreciation options

If your business needs equipment, technology, furniture, vehicles, or other qualifying property, Q4 may be the right time to make a purchase, but only if it supports your business plan and cash flow.

For 2026, the IRS states that the maximum Section 179 deduction is $2,560,000, with the deduction beginning to phase out when qualifying property placed in service exceeds $4,090,000. The IRS also explains that certain qualified property acquired and placed in service after January 19, 2025, may qualify for a 100% special depreciation allowance, commonly called bonus depreciation.

The key phrase is placed in service. Ordering equipment or signing a purchase agreement is not necessarily enough. Generally, the property must be ready and available for business use by December 31, 2026, to potentially affect your 2026 return.

Before making a purchase:

• List equipment you genuinely need for operations.

• Confirm the expected delivery, installation, and in-service date.

• Review whether the asset qualifies for Section 179 or bonus depreciation.

• Consider business-use requirements for vehicles and other listed property.

• Compare the cash-flow impact with the expected tax benefit.

• Ask whether claiming a large deduction this year is better than spreading deductions over future years.

The IRS Publication 946 guidance on depreciation and Section 179 provides technical details, but your accountant should model the result for your specific business.

A tax deduction should not be the only reason to spend money. The best purchase is one that improves efficiency, capacity, safety, or profitability, and also receives appropriate tax treatment.

2. Review retirement plan contributions

Retirement contributions can help you build long-term financial security while potentially reducing taxable income. They can also be an important part of a benefits package if you have employees.

The deadline depends on the type of plan and the type of contribution. For example, employee salary deferrals to a 401(k) generally must be elected and contributed during the year, while certain employer contributions to a SEP-IRA or profit-sharing plan may be made by the business tax return deadline, including extensions.

Before December 31:

• Check how much you and your employees have contributed so far.

• Confirm the remaining contribution capacity under your plan.

• Review whether your payroll setup is correctly processing deferrals.

• Ask whether a new retirement plan can still be established for 2026.

• Project business profit before deciding on employer contributions.

• Confirm the deadlines directly with your plan administrator.

Do not assume every retirement contribution has the same deadline. A missed employee deferral opportunity may not be recoverable after year-end, while some employer contributions may have more flexibility.

Your tax professional and retirement plan provider can help determine whether a solo 401(k), SEP-IRA, SIMPLE IRA, traditional 401(k), or another arrangement fits your business.

3. Plan the timing of income and deductible expenses

The timing of income and expenses can affect which tax year includes a transaction. However, the correct strategy depends heavily on whether you use the cash or accrual method of accounting and whether special tax rules apply.

For many cash-basis businesses, delaying an invoice until January may defer income into 2027-but only if the arrangement is legitimate and consistent with your accounting method. Similarly, paying an ordinary and necessary business expense before December 31 may allow it to be considered for 2026, but prepaying expenses does not automatically create a current deduction.

Review:

• Invoices that could be issued or collected before year-end.

• Customer deposits and unearned revenue.

• December payroll, bonuses, and year-end employee benefits.

• Necessary supplies or services you expect to purchase soon.

• Outstanding bills and vendor obligations.

• Prepaid insurance, subscriptions, rent, and other expenses.

• Large transactions that could create unusual income or deductions.

The goal is not simply to push income into the next year or accelerate every expense. The better question is: What timing strategy supports both your tax position and your business cash flow?

If you expect 2027 to be significantly more profitable, or less profitable, timing decisions may have a different result than they would in a stable year.

4. Revisit your business entity and owner compensation

Your business structure affects how income is taxed, how owners are paid, payroll responsibilities, and which planning strategies may be available.

If you are a sole proprietor or single-member LLC, you may want to discuss whether your current structure still fits your profit level and goals. If you operate as an S corporation, review whether your owner compensation is reasonable and whether payroll, withholding, and shareholder distributions are being handled correctly. Partnerships and multi-member LLCs should review ownership percentages, guaranteed payments, capital accounts, and allocation provisions.

Questions to consider:

• Has your profit changed significantly since the entity was formed?

• Are you taking on employees, partners, or investors?

• Is your owner compensation consistent with your role and industry?

• Are payroll taxes and payroll filings current?

• Are distributions or draws being recorded correctly?

• Have ownership percentages or business responsibilities changed?

• Would a different structure support your long-term plans?

Do not change your entity simply because someone promises a lower tax bill. Entity changes can create legal, payroll, state tax, administrative, and compliance consequences. Some elections must be made by a specific deadline, and changing structures may not provide an immediate benefit.

A year-end planning meeting is a good time to evaluate the structure you have, not to make a rushed change without modeling the consequences.

5. True up estimated tax payments

If you are self-employed, a partner, an S corporation shareholder, or a business owner with income that is not fully covered by withholding, your tax liability may be higher than expected.

The IRS explains that individuals generally may need estimated tax payments when they expect to owe at least $1,000 when filing. Corporations generally may need estimated payments when they expect to owe at least $500.

Review:

• Year-to-date business income.

• Federal and state estimated payments already made.

• Payroll withholding from owner wages or other employment.

• Expected year-end income and deductions.

• Self-employment tax or other applicable taxes.

• The Q4 estimated payment due January 15, 2027.

Many taxpayers can avoid an underpayment penalty by meeting a safe-harbor threshold, such as paying at least 90% of current-year tax or 100% of prior-year tax, with special rules for certain higher-income taxpayers.

Your IRS estimated tax resources explain the general rules. Your accountant can compare your projected 2026 tax with payments already made and help determine whether an adjustment is appropriate.

Do not wait until your tax return is prepared to discover that your estimated payments were too low.

6. Complete charitable giving thoughtfully

Charitable giving can be meaningful for your family and community, but it should be planned with your tax situation in mind.

For an individual owner of a pass-through business, a charitable contribution is generally considered on the owner’s personal return rather than deducted directly by the business. A C corporation may have different rules for corporate charitable contributions. The type of donation, recipient organization, income level, and deduction limits can all matter.

If you plan to donate before year-end:

• Confirm that the organization is qualified.

• Make the contribution by the end of your tax year.

• Keep receipts and written acknowledgments.

• Document noncash donations carefully.

• Obtain an appraisal when required.

• Discuss appreciated property or larger gifts before transferring anything.

• Consider whether bunching contributions into one year makes sense.

The IRS charitable contribution guidance explains that contributions generally must be paid before the close of the tax year to be deductible. Limits and substantiation requirements vary, so obtain professional advice before making a significant gift.

7. Review and clean up your books while there is still time

Accurate books are the foundation of useful tax planning. If your profit and loss statement is missing transactions or your balance sheet contains unreconciled accounts, it is difficult to estimate taxes or evaluate year-end decisions.

Before December 31, review:

• Bank and credit card reconciliations.

• Payment processor accounts such as Stripe, Square, or PayPal.

• Open invoices and unpaid bills.

• Owner draws, contributions, and distributions.

• Loan balances and interest.

• Fixed assets and equipment purchases.

• Inventory, if applicable.

• Payroll liabilities.

• Contractor payments and 1099 information.

• Business mileage, meals, travel, and home office records.

• Receipts and documentation for significant expenses.

Run an updated profit and loss statement, balance sheet, and cash flow report. Compare the results with the prior year and investigate anything that looks unusual.

Our guide to year-end financial reports can help you understand which reports to review. You can also use the checklist in How to Prepare Your Books for Tax Season to organize missing records and supporting documents.

Clean books do more than make tax preparation easier. They give you time to make decisions before the year closes.

Tax planning beats tax preparation

Once December 31, 2026, passes, many opportunities to affect the 2026 tax year disappear. You generally cannot decide in April to purchase equipment, increase a payroll deferral, change the timing of a transaction, or make a year-end charitable gift and have it automatically apply to the prior year.

That is why planning should happen before preparation.

Your next steps

1. Schedule a year-end tax planning meeting.

2. Provide current financial statements through the latest completed month.

3. Gather records of estimated payments and major purchases.

4. List equipment, retirement contributions, charitable gifts, and other decisions under consideration.

5. Ask your accountant to model the tax and cash-flow impact of each option.

6. Complete appropriate actions before December 31, 2026.

7. Keep documentation for every decision.

At Your Business Accountant, we help small business owners understand their numbers, plan for taxes, and make confident financial decisions. Our educational approach combines bookkeeping, tax preparation, tax planning, QuickBooks Online support, and financial coaching.

Schedule a year-end tax planning session with Your Business Accountant before the calendar runs out.