Year-End Tax Planning Checklist for Small Business (2026)

Year end tax planning for a small business comes down to a handful of decisions you must make before December 31: when to collect income, which expenses and equipment purchases to pull into this year, how much to put into a retirement plan, and whether your estimated payments are on track. Done in November with real numbers, it can cut a few thousand dollars off a typical owner's bill without any aggressive tricks. This checklist covers the 2026 rules, including the changes from the One Big Beautiful Bill Act (OBBBA), with a worked example.

This is general information, not tax advice. Rules depend on your entity type, accounting method and state, so confirm your plan with a CPA or enrolled agent before acting.

Why year end tax planning matters more in 2026

The OBBBA, signed in July 2025, made several provisions permanent and changed others. For small businesses the most important ones for 2026 are:

• 100% bonus depreciation is back permanently for qualifying property acquired after January 19, 2025.
• Section 179 expensing is much larger: the 2026 limit is $2,560,000, phasing out once qualifying purchases exceed $4,090,000, under the IRS inflation adjustments in Rev. Proc. 2025-32.
• The qualified business income (QBI) deduction of up to 20% for pass-through owners is now permanent. Owners near the income thresholds should check eligibility before year-end.
• The SALT cap for itemizers is $40,400 for 2026, phasing down for modified AGI above $505,000.
• 1099-NEC and 1099-MISC thresholds rise to $2,000 for payments made in 2026, covered in our 1099-NEC threshold guide.
• Charitable rules changed for 2026, including a 1% floor for corporations and a 0.5% of AGI floor for individuals who itemize. Our new guide to charitable donations and your business has the details.

The 2026 year-end tax planning checklist

Area	Action before Dec 31, 2026	Who it helps most
Income timing	Decide which December invoices to send now and which to issue in January	Cash-basis owners expecting a lower rate next year
Expenses	Pay outstanding bills, prepay qualifying 12-month expenses	Cash-basis businesses
Equipment	Buy and place in service needed assets; elect Section 179 or bonus	Businesses with planned purchases
Retirement	Open a solo 401(k) or confirm deferral elections; plan SEP contribution	Profitable self-employed owners
Bad debts	Review unpaid invoices and document uncollectible ones	Accrual-basis businesses
Estimated taxes	Check safe harbor; plan the January 15, 2027 payment	Anyone without enough withholding
Payroll and contractors	Collect W-9s, verify addresses, review S corp salary	Employers and payers of contractors
Records	Reconcile bank accounts, match invoices to deposits	Everyone

Step 1: Project your full-year profit

Every other decision depends on an honest projection. Take year-to-date profit from your books, add expected November and December income, and subtract expected costs. Then compare the result with last year and with what you expect for 2027. If you expect a much higher income next year, accelerating income into 2026 may be better; if 2026 is a peak year, deferring income and pulling deductions forward usually wins.

Use the 2026 federal tax brackets to see where your next dollar of profit lands. Add 15.3% self-employment tax on most sole proprietor and partnership profit (on 92.35% of net earnings, with the Social Security part capped at the wage base). That combined marginal rate is what each deduction is really worth.

Step 2: Time your invoices and collections

For cash-basis businesses, which includes most freelancers and sole proprietors, income counts in the year you receive it. That makes invoice timing a legitimate planning lever:

1. If you want income in 2026, send December invoices early, offer card or instant bank payment, and follow up on overdue balances. Our payment reminder email templates help clear old receivables before the year closes.
2. If you want income in 2027, finish the work but issue the invoice in late December with January payment terms, or date it in January. Do not hold checks you already have: under the constructive receipt rule, money available to you without restriction is income now even if you do not deposit it.
3. Retainers and deposits received in December are generally income when received for cash-basis taxpayers, even for 2027 work. Plan big retainer invoices with that in mind.

Accrual-basis businesses record income when it is earned, so the invoice date matters less than when the work is done. If you are unsure which method you use, our explainer on cash vs accrual accounting walks through it.

Step 3: Pull deductible expenses into 2026

Pay bills you already owe

Paying supplier invoices, subcontractors and credit card charges for business expenses before December 31 moves the deduction into 2026 for cash-basis businesses. Charges on a business credit card count when charged, not when you pay the card.

Use the 12-month rule for prepaid costs

Cash-basis taxpayers can generally deduct prepaid expenses whose benefit does not extend beyond the earlier of 12 months after the benefit starts or the end of the following tax year. Insurance premiums, a year of software or a January rent payment are common examples.

Review the usual deductions

Run through the common categories in our self-employed tax deductions guide: home office, vehicle use (the 2026 standard mileage rate is 72.5 cents per business mile), health insurance, phone and internet, professional fees and education. Small items under $2,500 per invoice or item can usually be expensed under the de minimis safe harbor election instead of depreciated.

Step 4: Equipment, Section 179 and bonus depreciation

If you were going to buy a computer, vehicle, machinery or furniture in early 2027 anyway, buying it and placing it in service by December 31 can move the whole deduction into 2026. Two tools do this:

Feature	Section 179	Bonus depreciation
2026 limit	$2,560,000, phasing out above $4,090,000 of purchases	No dollar cap; 100% for property acquired after Jan 19, 2025
Can create a loss?	No, limited to business taxable income	Yes
Choose asset by asset?	Yes	Elect out by class of property
Used property	Allowed if new to you	Allowed if new to you

Passenger vehicles still face annual luxury auto limits, and heavy SUVs have a separate Section 179 cap. Our comparison of Section 179 vs bonus depreciation covers which to elect. Remember that a full write-off now means no depreciation later, and if business use of an asset falls to 50% or below, you may have to recapture part of the deduction.

Step 5: Retirement contributions

Retirement plans are often the biggest legitimate deduction available to a profitable owner. For 2026, the 401(k) employee deferral limit is $24,500, and the overall defined contribution limit, which also caps SEP IRA contributions, is $72,000. A SEP IRA can be opened and funded up to your filing deadline, including extensions. A solo 401(k) usually lets you save more at moderate income because you contribute as both employee and employer, but plan setup and deferral election timing rules apply, so speak to your provider in November rather than December 30. Our solo 401(k) vs SEP IRA comparison runs the numbers.

Step 6: Check estimated taxes and safe harbor

If you do not have enough withheld, the fourth estimated payment for 2026 is due January 15, 2027. To avoid an underpayment penalty you generally need to pay at least 90% of 2026 tax or 100% of 2025 tax (110% if 2025 AGI was over $150,000). The IRS underpayment interest rate was 7% for the quarter starting October 1, 2026, according to the IRS announcement of fourth-quarter 2026 rates. Our new guide to the underpayment penalty and Form 2210 explains how the penalty is calculated and how to avoid it.

Step 7: Clean up receivables and write off bad debts

Go through every open invoice. For each one, decide whether to chase it, settle it or write it off. Accrual-basis businesses that already reported an invoice as income can generally deduct it as a bad debt once it is wholly or partly worthless, with documentation of your collection efforts. Cash-basis businesses never reported unpaid invoices as income, so there is nothing to write off, but cleaning the list still improves your planning.

Step 8: Contractors, payroll and S corp salary

• Collect a Form W-9 from every contractor you paid $2,000 or more in 2026; a missing W-9 is the most common reason 1099s go out late.
• S corporation owners should confirm they have taken reasonable salary through payroll before year-end. Owner health insurance premiums must also be included in W-2 wages.
• Employers should verify employee addresses and Social Security numbers so Forms W-2 go out correctly by February 1, 2027.

Worked example: a consultant's year-end plan

Maria is a sole proprietor consultant using cash accounting. These numbers are illustrative.

Item	Before planning	After planning
Projected 2026 net profit	$128,000	$128,000
Laptop and monitor bought and set up Dec 10 (Section 179)	$0	-$3,200
Prepaid 12-month software and insurance	$0	-$1,800
Invoice for December work dated Jan 2, 2027	$0	-$6,000
Net profit for 2026	$128,000	$117,000
SEP IRA contribution (roughly 20% of net earnings after SE tax deduction)	$0	About $21,800

Moving $11,000 of profit out of 2026 cuts both income tax and self-employment tax. At a combined marginal rate of about 37% (24% federal plus roughly 13% net self-employment tax), that is around $4,000 of tax saved or deferred, before the SEP contribution, which reduces income tax further. The deferred invoice is not a permanent saving: Maria will pay tax on that $6,000 in 2027, so it only helps if her 2027 rate is the same or lower, or if she simply values the deferral.

Common year-end mistakes to avoid

• Buying things you do not need. A deduction returns only a fraction of what you spend.
• Ordering equipment that arrives in January. The asset must be placed in service in 2026.
• Back-dating invoices. Change when you send an invoice, never the date of an invoice already issued. Number invoices sequentially so dates and numbers tell a consistent story; our invoice number generator helps.
• Ignoring state rules. Some states do not follow federal bonus depreciation or Section 179 limits.
• Forgetting the paperwork. Keep receipts, invoices and bank records together, as described in our year-end invoicing checklist.

What to do if you missed something

Not every opportunity ends on December 31. SEP IRA contributions, HSA contributions and the choice of depreciation method can be made when you file. If you need more time to get the numbers right, an extension gives you until October 15 to file, though not to pay; see our guide to Form 4868 personal tax extensions. If you discover a missed deduction after filing, you can usually amend within three years.

Clean invoices make every step above easier, from timing December billing to proving income to your accountant. Create and send professional invoices with our free invoice generator: no sign-up needed, and you can download each invoice as a PDF in seconds.