Year-End Tax Planning 2026: 12 Smart Moves for Owners

Year-end tax planning is the single most valuable financial habit a small business owner or self-employed professional can build, because the moves you make before December 31 decide how much of this year’s profit you actually keep. Once the calendar flips to January, most of your options are gone and all that is left is reporting what already happened.

2026 is a particularly important year to get this right. It is the first full tax year in which many One Big Beautiful Bill Act (OBBBA) provisions apply, including new charitable deduction floors, a higher 1099 reporting threshold, a bigger SALT cap, and permanent 100% bonus depreciation.

This guide walks you through a practical year-end tax planning checklist: timing income and expenses, equipment purchases, retirement and HSA contributions, payroll and S corp salary, PTET elections, charitable changes, tax-loss harvesting, 1099 prep, your Q4 estimated payment, and an entity review for 2027. Every figure comes from current 2026 IRS numbers.

Table of Contents

1. Why Year-End Tax Planning Matters More in 2026
2. Timing Income and Expenses
3. Equipment Purchases: Section 179 and Bonus Depreciation
4. Retirement Contributions and HSAs
5. Payroll, Bonuses, and S Corp Salary
6. PTET, SALT, and Charitable Changes for 2026
7. Tax-Loss Harvesting and the QBI Deduction
8. 1099 Prep and Your Q4 Estimated Payment
9. Entity Review for 2027
10. Common Year-End Tax Planning Mistakes
11. Year-End Tax Planning FAQ
12. Final Thoughts

Why Year-End Tax Planning Matters More in 2026

OBBBA, signed July 4, 2025, made the TCJA individual rates of 10%, 12%, 22%, 24%, 32%, 35%, and 37% permanent. That permanence is good news for year-end tax planning, because you can make decisions without worrying that rates will jump unexpectedly next year.

At the same time, the law changed many business rules. Some changes help you (permanent bonus depreciation, a higher SALT cap, a new minimum QBI deduction), and some take away a little (charitable floors and a 35% cap on the value of itemized deductions for top-bracket taxpayers). You can read the IRS summary on its One Big Beautiful Bill provisions page.

The result is that 2026 year-end tax planning looks different from what you did in prior years. Strategies that worked in 2024 may now be weaker, and new ones deserve a spot on your list.

Key 2026 Figures for Your Year-End Tax Planning

Keep this reference table handy as you work through the checklist.

Item	2026 Figure
Standard deduction	$16,100 single; $32,200 MFJ; $24,150 head of household
37% bracket begins	$640,600 single; $768,700 MFJ
Section 179 limit / phase-out start	$2,560,000 / $4,090,000
Section 179 SUV limit	$32,000
Bonus depreciation	100% (property acquired after Jan 19, 2025)
401(k) employee deferral	$24,500 (+$8,000 catch-up age 50+; $11,250 ages 60–63)
Total annual additions (415(c))	$72,000
IRA contribution	$7,500 (+$1,100 catch-up)
SIMPLE IRA	$17,000 (+$4,000 catch-up)
HSA	$4,400 self-only; $8,750 family; +$1,000 age 55+
Social Security wage base	$184,500
QBI threshold	$201,750 single; $403,500 MFJ
SALT cap	$40,400 (reduced above $505,000 MAGI, not below $10,000)
1099-NEC / 1099-MISC threshold	$2,000
Q4 estimated payment due	January 15, 2027

When to Start

The best time to start year-end tax planning is right now, in late September or early October. You need a reasonably accurate profit projection first, which means your books through September should be closed and reconciled.

If your bookkeeping is behind, catching up is step one. Professional bookkeeping support can close the gap quickly so the rest of your plan is built on real numbers instead of guesses.

Timing Income and Expenses

The foundation of year-end tax planning is simple: pay tax later, at a lower rate, or both. For cash-basis businesses, which include most sole proprietors and many small LLCs, you report income when you receive it and deduct expenses when you pay them.

That gives you real control in December. You can choose when to send invoices and when to pay bills, as long as the transactions are genuine and consistent with how you normally run the business.

Deferring Income

If you expect to be in the same or a lower bracket in 2027, delaying some December billing until early January can push income into next year. Be careful, though. Under the constructive receipt rule, a check you have in hand or money made available to you counts as received, even if you do not deposit it.

Accelerating Expenses

The flip side of deferral is prepaying deductible expenses. Common candidates include office supplies, software subscriptions, marketing, repairs, professional development, and contractor work already performed.

Paying with a business credit card in December generally counts as payment in 2026 for cash-basis taxpayers, even if you pay the card balance in January. Keep receipts and document the business purpose of every expense, and remember business meals are only 50% deductible while entertainment is not deductible at all.

When to Do the Opposite

Smart year-end tax planning is not always about cutting this year’s tax. If 2026 was a slow year and you expect a big 2027, it may be better to pull income into 2026 and delay expenses so income is taxed at today’s lower rate.

Worked example: Maria, a single freelance designer, projects $95,000 of taxable income for 2026, placing her in the 22% bracket. She expects a new retainer client to push 2027 taxable income well into the 32% bracket. Pulling a $15,000 invoice into December means that income is taxed at 22% ($3,300) rather than 32% ($4,800), a $1,500 income tax difference.

Equipment Purchases: Section 179 and Bonus Depreciation

Equipment purchases are often the largest single lever in year-end tax planning. In 2026, you have two powerful tools: Section 179 expensing and 100% bonus depreciation.

Section 179 in 2026

Section 179 lets you deduct the full cost of qualifying equipment, vehicles, and software in the year you place it in service, up to $2,560,000. The deduction begins to phase out once total qualifying purchases exceed $4,090,000, which is well above what most small businesses spend.

Heavy SUVs have a special Section 179 cap of $32,000. Section 179 is also limited to business income, so it cannot create a loss, though any excess can carry forward. You claim it on Form 4562; see the IRS About Form 4562 page for instructions.

100% Bonus Depreciation, Now Permanent

OBBBA made 100% bonus depreciation permanent for qualified property acquired after January 19, 2025. Unlike Section 179, bonus depreciation has no dollar cap and can create or increase a business loss, subject to the excess business loss limitation, which was also made permanent.

Many owners use both: Section 179 for precise control over the deduction amount, and bonus depreciation for the rest. Your advisor can choose the right mix for your year-end tax planning goals.

The “Placed in Service” Rule

Here is the detail that trips people up every December. Buying equipment is not enough. The asset must be placed in service, meaning delivered, set up, and ready for its intended use, by December 31, 2026.

When Slower Depreciation Is Better

Taking the entire deduction upfront is not always the best year-end tax planning choice. If your income is unusually low this year, spreading the cost with regular depreciation may deliver more value in future, higher-bracket years. Our guide to straight line depreciation explains how that slower method works.

Worked example: James runs a landscaping business as a sole proprietor and is in the 24% bracket. He buys and places in service an $80,000 piece of equipment in November. Expensing it fully saves about $19,200 in federal income tax ($80,000 × 24%), plus self-employment tax savings, because the deduction also reduces his Schedule C profit.

Retirement Contributions and HSAs

Retirement plans deliver a double win in year-end tax planning: you cut this year’s tax bill and build long-term wealth. The 2026 limits are the highest ever, as announced on the IRS 2026 retirement limits page.

Solo 401(k)

If you are self-employed with no employees other than a spouse, a solo 401(k) is usually the most powerful option. You can defer up to $24,500 as the “employee,” plus $8,000 in catch-up if you are 50 or older, or $11,250 if you are between 60 and 63.

On top of that, the business can make an employer contribution. Total annual additions, excluding catch-up, are capped at $72,000, and only the first $360,000 of compensation counts. The plan generally must be set up by year-end to allow 2026 employee deferrals, so do not wait until April.

SEP IRA

A SEP IRA allows contributions of up to 25% of compensation, which works out to roughly 20% of net self-employment earnings for sole proprietors, capped at $72,000. SEPs are simple and can generally be opened and funded up to your filing deadline, including extensions.

That flexibility makes a SEP a useful backup if you miss the December 31 window for a 401(k). However, SEPs have no employee deferral component, so a solo 401(k) usually allows larger contributions at moderate income levels.

The New Roth Catch-Up Rule

Starting in 2026, employees whose prior-year FICA wages exceeded $150,000 must make catch-up contributions as Roth contributions. That means no immediate deduction on the catch-up amount. S corp owners paying themselves a high W-2 salary should factor this into their year-end tax planning.

Worked example: Daniel, age 45, is a sole proprietor consultant with $150,000 of net Schedule C profit. His self-employment tax is about $21,194, and half of that ($10,597) is deductible, leaving about $139,403 of net SE earnings. His maximum employer contribution is roughly 20% of that, or about $27,881. Adding his $24,500 employee deferral, his solo 401(k) total is about $52,381, well under the $72,000 cap. At 24%, that saves roughly $12,571 in federal income tax.

Health Savings Accounts

An HSA is one of the best year-end tax planning tools available. Contributions are deductible, growth is tax-free, and withdrawals for qualified medical expenses are tax-free too.

For 2026, you can contribute $4,400 for self-only coverage or $8,750 for family coverage, plus $1,000 if you are 55 or older. New for 2026, bronze and catastrophic marketplace plans are HSA-compatible, which opens HSAs to many self-employed people who buy their own insurance.

A family maxing out the $8,750 HSA limit in the 24% bracket saves about $2,100 in federal income tax. If your business offers benefits, note that the health FSA limit is $3,400 and the dependent care FSA limit rises to $7,500 in 2026.

Payroll, Bonuses, and S Corp Salary

If you have employees or operate as an S corporation, payroll decisions are a core part of year-end tax planning. Payroll changes take time to process, so schedule them before the final December pay run.

Year-End Bonuses

Bonuses paid to employees by December 31 are generally deductible in 2026. Accrual-basis businesses may be able to deduct bonuses paid shortly after year-end if specific rules are met, so confirm the details with your advisor before promising a January payout.

Reasonable S Corp Salary

S corporation owners who work in the business must pay themselves reasonable compensation through payroll. Profits above salary can be taken as distributions, which avoid Social Security and Medicare taxes.

Year-end tax planning for S corps starts with reviewing whether your 2026 salary is reasonable for your role, industry, and hours. Too low invites IRS scrutiny; too high wastes payroll tax. Remember that Social Security tax applies only to wages up to $184,500, while Medicare applies to all wages, with an additional 0.9% over $200,000 single or $250,000 MFJ.

Salary, QBI, and Retirement Interplay

Your S corp salary affects more than payroll tax. It determines how much you can contribute to a 401(k) as an employer contribution, and it reduces the qualified business income that feeds your QBI deduction.

Worked example: Priya’s consulting S corp will earn $200,000 of profit before her salary in 2026. If a $90,000 salary is reasonable for her role, the remaining $110,000 can be paid as distributions. Compared with paying self-employment tax on the whole $200,000, that structure saves roughly $14,500 of payroll tax, before accounting for payroll costs and state rules. (The saving is less than a flat 15.3% of $110,000 because Social Security tax stops at the $184,500 wage base.)

PTET, SALT, and Charitable Changes for 2026

State taxes and charitable giving both changed significantly under OBBBA, and your 2026 year-end tax planning should reflect both.

The Higher SALT Cap

The state and local tax deduction cap is $40,400 for 2026, up from $40,000 in 2025. It is reduced for taxpayers with MAGI over $505,000, but not below $10,000, and it reverts to $10,000 in 2030.

For many owners, the higher cap means itemizing may beat the $32,200 MFJ standard deduction again.

Pass-Through Entity Tax (PTET) Elections

PTET elections remain a workaround in many states. The partnership or S corp pays state income tax at the entity level, where it is deductible as a business expense, rather than on your personal return, where it would be limited by the SALT cap.

PTET is especially valuable for high earners whose SALT cap is reduced toward $10,000. Election deadlines and payment timing vary by state, and many states require payments by year-end to deduct them in 2026, so this belongs near the top of your year-end tax planning list.

Worked example (illustrative): A married S corp owner with $700,000 of MAGI has her SALT cap reduced toward the $10,000 floor. If her state imposes $30,000 of income tax on her share of business income and the S corp pays it through a PTET election, the full $30,000 becomes a business deduction. In the 35% bracket, that could save around $10,500 in federal tax compared with losing most of it to the cap.

Charitable Changes for 2026

Starting in 2026, charitable rules shift in three ways:

• Non-itemizers can deduct up to $1,000 single or $2,000 MFJ of cash gifts to qualifying charities.
• Itemizers can deduct only charitable gifts above 0.5% of AGI.
• Corporations can deduct only charitable gifts above 1% of taxable income.

Also from 2026, the benefit of itemized deductions is capped at 35% for taxpayers in the 37% bracket. For those taxpayers, each dollar of charitable giving is worth a little less than before.

Bunching Gifts

Because of the new floor, bunching several years of gifts into one year, often through a donor-advised fund, can be a smart year-end tax planning strategy. You itemize in the bunching year and take the standard deduction in other years.

Worked example: A married couple with $250,000 of AGI faces a floor of $1,250 (0.5% × $250,000). If they give $5,000 a year, only $3,750 counts each year. By bunching three years ($15,000) into 2026, they lose the $1,250 floor only once instead of three times.

Tax-Loss Harvesting and the QBI Deduction

Year-end tax planning is not limited to your business. Your investment portfolio and your QBI position can also shift your final bill.

Tax-Loss Harvesting

Tax-loss harvesting means selling investments in a taxable brokerage account that are worth less than you paid, then using those losses to offset capital gains. Excess losses can offset a limited amount of ordinary income, with the rest carried forward to future years.

Watch out for the wash-sale rule. If you buy the same or a substantially identical security shortly before or after the sale, the loss is disallowed. Many investors swap into a similar but not identical fund to stay invested.

Harvesting Gains

Sometimes the smarter year-end tax planning move is the reverse. If you are in a low-income year, realizing gains at lower rates can reset your cost basis for the future.

Managing the QBI Deduction

The 20% Section 199A qualified business income deduction is now permanent. For 2026, the threshold is $201,750 single or $403,500 MFJ, with the phase-in range widened to $75,000 single and $150,000 MFJ, so limits fully apply at $276,750 and $553,500.

If you run a specified service trade or business (SSTB), such as consulting, law, health, or accounting, your QBI deduction shrinks and eventually disappears above those thresholds. Retirement contributions, HSA funding, and timing moves can pull your taxable income back under the threshold. Learn more on the IRS QBI deduction page.

R&D Expenses and Credits

Under new Section 174A, domestic research and experimental expenditures are immediately deductible again. If your business develops software, products, or processes, review your R&D spending as part of year-end tax planning.

Qualified small businesses with under $5 million of gross receipts can apply up to $500,000 per year of the R&D credit against payroll taxes. If you missed the retroactive Section 174A election for earlier years, talk to an advisor about remaining options.

1099 Prep and Your Q4 Estimated Payment

Two compliance tasks belong on every year-end tax planning checklist: getting your 1099 reporting ready and making the right final estimated payment.

The New $2,000 1099 Threshold

For payments made in 2026, the Form 1099-NEC and 1099-MISC reporting threshold rises from $600 to $2,000, indexed for inflation afterward. That means fewer forms for contractors you paid small amounts.

Do not relax too much. You still need accurate records, and you still need a W-9 on file for every contractor. The 1099-K threshold for payment platforms is back to $20,000 and 200 transactions.

Your 1099 Prep Checklist

• Pull a vendor report of all 2026 payments to non-corporate contractors.
• Flag anyone paid $2,000 or more for services.
• Collect missing W-9 forms now, before the holidays.
• Confirm names, addresses, and taxpayer ID numbers.
• Exclude payments made by credit card or payment platforms, which are reported on 1099-K instead.

The Q4 Estimated Tax Payment

The 2026 estimated tax due dates are April 15, June 15, and September 15, 2026, and January 15, 2027. The January payment is your last chance to avoid an underpayment penalty for 2026.

You avoid penalties if you pay the smaller of 90% of your 2026 tax or 100% of your 2025 tax (110% if your 2025 AGI was over $150,000). Individuals use Form 1040-ES and corporations use Form 1120-W. You can pay through IRS Direct Pay, EFTPS, or your IRS Online Account. The IRS estimated taxes page has the details.

Worked example: Laura’s 2025 federal tax was $40,000, and her 2025 AGI was over $150,000. Her safe harbor is 110%, or $44,000. She has paid $30,000 through September, so a $14,000 payment by January 15, 2027, protects her from penalties even if her 2026 income turns out higher.

The Withholding Trick

If you also receive W-2 wages, such as S corp salary, increasing withholding in your final paychecks can cover a shortfall. Withholding is generally treated as paid evenly throughout the year, which can help reduce penalties from earlier quarters. This is a useful last-minute year-end tax planning fix.

Entity Review for 2027

The end of the year is the ideal time to ask whether your business structure still fits. An entity review is a forward-looking part of year-end tax planning that can shape your taxes for years.

Sole Proprietor or Single-Member LLC

Most businesses start as sole proprietorships or single-member LLCs, taxed on Schedule C. All profit is subject to 15.3% self-employment tax up to the $184,500 wage base, plus 2.9% Medicare above it. If you are unsure how an LLC is taxed, see our explainer on what LLC means.

S Corporation Election

Once profits are consistently high enough, an S corp election can save payroll tax by splitting income between salary and distributions. The trade-offs include running payroll, filing a separate return due March 15, 2027 for 2026, and paying a reasonable salary.

If you want the election to apply for 2027, plan it now as part of your year-end tax planning. Timing rules for elections are strict.

C Corporation

A C corporation pays a flat 21% rate. That can make sense if you plan to reinvest profits rather than distribute them, or if you are building a startup that could benefit from QSBS.

For stock issued after July 4, 2025, Section 1202 allows an exclusion of gain up to $15 million (indexed), with a $75 million gross-asset test. The exclusion is tiered: 50% after three years, 75% after four, and 100% after five.

Common Year-End Tax Planning Mistakes

Even well-intentioned owners make the same errors every December. Avoid these and your year-end tax planning will be far more effective.

1. Buying Things You Do Not Need

Spending $10,000 to save $2,400 in tax still leaves you $7,600 poorer. Buy equipment because the business needs it, not just for the deduction.

2. Missing the Placed-in-Service Deadline

Equipment delivered on January 3 counts for 2027, not 2026. Confirm delivery and setup dates before you sign.

3. Waiting Too Long to Open a Retirement Plan

A solo 401(k) generally must be established by year-end for employee deferrals. Leaving it until tax season can cost you thousands in lost deductions.

4. Ignoring Reasonable Compensation

S corp owners who pay themselves little or no salary risk IRS reclassification of distributions as wages, plus penalties and interest.

5. Forgetting the New Charitable Floor

Many donors still assume every dollar of giving is deductible. From 2026, the 0.5% floor for itemizers and the 35% cap for the top bracket change the math.

6. Overlooking PTET Deadlines

State PTET elections and payment deadlines vary. Missing them can mean losing a valuable federal deduction for the year.

7. Starting in December

The biggest mistake is starting year-end tax planning too late. By mid-December, contractors are on holiday, equipment is backordered, and payroll deadlines are near. For a longer list of ideas, see our guide on how to save federal tax.

Year-End Tax Planning FAQ

When should I start year-end tax planning?

Ideally in late September or October, once your books are closed through the third quarter. That leaves time to buy equipment, adjust payroll, and set up retirement plans before December 31.

Is 100% bonus depreciation available in 2026?

Yes. OBBBA made 100% bonus depreciation permanent for qualified property acquired after January 19, 2025. The property must be placed in service by December 31, 2026, to be deducted on your 2026 return.

How much can I put in a solo 401(k) for 2026?

You can defer $24,500, plus $8,000 if you are 50 or older, or $11,250 if you are 60 to 63. Combined with employer contributions, total additions are capped at $72,000, excluding catch-up.

Do I still need to send 1099s to contractors I paid $1,000?

For payments made in 2026, the Form 1099-NEC and 1099-MISC threshold is $2,000. A contractor paid $1,000 for the year generally does not need a 1099-NEC, but keep records and a W-9 on file anyway.

What is the safe harbor for estimated taxes?

Pay at least 90% of your 2026 tax or 100% of your 2025 tax, or 110% if your 2025 AGI exceeded $150,000. The final 2026 payment is due January 15, 2027.

Is a PTET election worth it with the higher SALT cap?

Often yes, especially if your MAGI exceeds $505,000 and your SALT cap is reduced toward $10,000. PTET lets the business deduct state income tax at the entity level. Rules vary by state, so review them in your year-end tax planning.

Can I deduct charitable gifts if I take the standard deduction?

From 2026, yes, up to $1,000 single or $2,000 MFJ of cash gifts to qualifying charities. Gifts to donor-advised funds typically do not qualify for this non-itemizer deduction.

Should I switch to an S corp for 2027?

It depends on your profit, reasonable salary, state taxes, and administrative costs. Run the numbers now as part of your year-end tax planning so any election is filed on time.

Final Thoughts

Year-end tax planning is not a single decision but a series of small, well-timed moves. Time your income and expenses, place equipment in service before December 31, fund retirement plans and HSAs, set a reasonable S corp salary, review PTET and charitable strategies, harvest investment losses, prepare your 1099s, and make your January 15 estimated payment.

OBBBA changed enough rules that 2026 is not the year to repeat last year’s playbook. The owners who act in October and November will keep noticeably more of their profit than those who wait until tax season.

If you would like ongoing support rather than a once-a-year scramble, a virtual CFO service can keep your year-end tax planning on track all year long.

Disclaimer: This article provides general information only and is not tax, legal, or financial advice. Tax outcomes depend on your specific facts and state rules. Please consult a qualified CPA or tax advisor before acting on any strategy. Figures are current as of September 2026.