Year-End Small Business Tax Planning: The October-to-December Action Checklist

The 90-day window from October through December represents the highest-leverage tax planning period of the year for small business owners. By October, the year's actual financial performance is largely visible, allowing data-driven decisions that combine current-year impact with strategic positioning for the following year. The taxpayers who consistently produce the best after-tax outcomes treat year-end as a structured planning event — not as last-minute scrambling.

October: Foundation and Projection

October is the time to establish accurate year-end projections.

Year-End Tax Projection

1. Compile year-to-date P&L through September 30.

2. Project Q4 income and expenses based on current trends and known events.

3. Calculate projected federal and state tax liability.

4. Compare to year-to-date tax payments (withholding + estimated payments).

5. Identify whether the business is over- or under-paying for the year.

Marginal Rate Analysis

Calculate the projected marginal rate on additional income or deductions using the current-year IRS brackets and filing status. A useful projection layers federal ordinary-income tax with capital-gain rates, self-employment tax, NIIT, Additional Medicare Tax, state tax, credits, phaseouts, and the timing of business deductions. Do not use the rate bracket alone as the decision rule.

QBI Deduction Threshold Review

Section 199A is permanent under current law. For 2026, project taxable income against the $201,750 threshold for most filing statuses and $403,500 for joint returns, then model the applicable phase-in range, business type, W-2 wages, qualified property, and other limitations. A deduction that lowers taxable income can change the result, but should still make economic sense on its own.

November: Action and Execution

Retirement Plan Optimization

• Solo 401(k) employee deferral: The 2026 employee deferral limit is $24,500, with an $8,000 general age-50 catch-up and an $11,250 catch-up for eligible participants ages 60 through 63. Employee deferrals are aggregated across plans.

• SEP-IRA / Solo 401(k) employer contribution: Calculate maximum 25% of compensation contribution; payment can be made by tax return due date (with extension).

• Defined benefit plan: Potential contributions depend on actuarial calculations, compensation, age, plan design, funding status, employee coverage, and timing. Have the plan administrator calculate the range and applicable adoption and funding deadlines.

• HSA contributions: If eligible, the 2026 limits are $4,400 for self-only coverage and $8,750 for family coverage, plus a $1,000 catch-up for an eligible person age 55 or older.

Equipment and Capital Expenditures

Decide on year-end capital purchases:

• Section 179: For 2026, the maximum deduction is $2.56 million and the investment phaseout begins at $4.09 million, subject to eligible-property and taxable-income limits.

• Bonus depreciation: The restored 100% additional first-year deduction generally applies to eligible property acquired after January 19, 2025, and placed in service after that date. Verify acquisition timing and state conformity.

• Heavy SUVs and listed property: The Section 179 SUV cap is indexed annually. Confirm the current limit, gross vehicle-weight rating, eligible business use, substantiation, and recapture exposure before modeling a deduction.

• De minimis safe harbor: $2,500/$5,000 per item for immediate expensing of small purchases.

• Placement in service deadline: December 31 — equipment must be in service, not just purchased.

S-Corp Salary True-Up

For S-corp owners:

• Verify W-2 wages are tracking toward reasonable compensation for the year.

• Calculate and process any year-end bonus needed to satisfy reasonable comp.

• Confirm year-end payroll deposits and W-2 issuance schedules.

• Add health insurance to W-2 wages for shareholders before year-end (required for §162(l) self-employed health insurance deduction).

Pass-Through Entity Tax (PTET) Election

For S-corps and partnerships in PTET states, verify the election is in place and entity-level estimated tax payments are sufficient. Late November is the critical window to make the final Q4 estimated PTET payment to ensure full federal deductibility.

December: Final Optimization

Charitable Giving

• Standard vs itemized analysis: The 2026 standard deduction is $32,200 for a joint return. Compare the actual itemized-deduction projection before bunching charitable gifts into one year.

• Donor-advised fund contributions for bunching with retained discretion over recipient timing.

• Appreciated stock donations bypass capital gains tax while providing FMV deduction.

• Qualified Charitable Distribution (QCD): Eligible IRA owners age 70½ or older should confirm the annually indexed limit and complete a direct transfer to an eligible charity; a properly structured QCD can count toward an RMD and is generally excluded from income.

Tax-Loss Harvesting

For taxpayers with significant investment portfolios:

• Identify positions with unrealized losses that can offset realized gains.

• Wash sale rule awareness — cannot rebuy substantially identical security within 30 days.

• Up to $3,000 of net capital losses can offset ordinary income annually; excess carries forward indefinitely.

Capital Gains Realization

For 2026, the 0% long-term capital-gains band ends at $98,900 of taxable income for joint filers. Ordinary income fills the band first, and realized gains can affect NIIT, credits, state tax, and Medicare premiums, so calculate the available room before trading.

Roth Conversions

Year-end Roth conversions allow filling lower brackets with conversion income. Critical: the conversion must be completed by December 31 — there is no grace period or extension. Coordinate with:

• Marginal rate analysis.

• IRMAA Medicare premium thresholds.

• NIIT MAGI thresholds.

• State tax exposure.

Quarterly Estimated Tax True-Up

The Q4 estimated tax payment is due January 15. Use the projected year-end income to true up estimated payments to satisfy safe harbor:

• 90% of current-year tax, OR

• 100% of prior-year tax (110% if prior AGI exceeded $150K).

Withholding (which is treated as paid evenly throughout the year) can sometimes cure underpayment penalties that an estimated payment cannot.

Required Minimum Distributions (RMDs)

Retirees age 73+ must take RMDs by December 31 (with one-time exception for age 73 first year — can defer to April 1 of following year). Missing the RMD triggers a 25% penalty (10% if corrected within 2 years under SECURE 2.0).

Annual Gift Exclusion Gifts

The annual gift-tax exclusion remains $19,000 per recipient for 2026. Gifts above the exclusion are not automatically taxable, but may require Form 709 and use part of the donor's lifetime exemption; completed-gift and present-interest rules matter.

FSA Use-or-Lose Deadlines

For employees with health FSA balances, review the employer plan's year-end, grace-period, and carryover terms. The permitted carryover cap is indexed and the plan may allow less or no carryover, so use the current plan document rather than a prior-year dollar amount.

Documentation and Recordkeeping

December is also the right time to:

• Reconcile bookkeeping through year-end.

• Ensure 1099-NEC and 1099-MISC information is collected for contractors.

• Verify W-9 forms are on file for all vendors requiring 1099s.

• Collect K-1s, 1099s, and other income documents as they arrive in January.

• Document mileage logs, accountable plan reimbursements, and home office calculations.

Multi-Year Strategy Considerations

Year-end planning should also consider multi-year positioning:

• Income smoothing across years to manage marginal rate exposure.

• Roth conversion planning during lower-income years before required minimum distributions begin, while accounting for Medicare, NIIT, state tax, and beneficiary goals.

• Cost segregation studies for newly acquired or owned commercial real estate.

• Estate and gift planning under the current $15 million 2026 federal basic exclusion framework, coordinated with basis, liquidity, state estate tax, and non-tax goals.

• QBI optimization under the now-permanent Section 199A rules, including taxable-income thresholds, business type, W-2 wages, qualified property, and reasonable-compensation effects.

Common Mistakes

• Waiting until December to begin planning (some strategies require Q3 execution).

• Missing the December 31 placed-in-service deadline for equipment.

• Failing to true up S-corp salary before year-end payroll closes.

• Roth conversions that push MAGI above IRMAA thresholds.

• Charitable giving without bunching analysis.

• Missing PTET election year-end payment requirements.

• Inadequate documentation of accountable plan reimbursements.

Bottom Line

Year-end tax planning is the most concentrated period of opportunity in the annual tax cycle. The 90-day window from October through December produces more tax savings per hour invested than any other period of the year. Working with a CPA on a structured year-end review — typically October for projection, November for execution, and December for optimization — typically produces tax savings many times the cost of the engagement. For small business owners and high-earning individuals, year-end planning should be a non-negotiable annual activity.