Year-End Tax Planning Checklist for Small Business Owners (Do This Before Dec 31)

Why Year-End Planning Is Worth More Than April Filing

There's a persistent myth that taxes are something you deal with in the spring. In reality, by April your tax bill is almost entirely locked in. The only variables left are whether your records are complete and whether you remembered to fund a SEP-IRA.

The real tax-saving window is October through December 31. That's when you can still accelerate deductions, defer income, make equipment purchases, max out retirement accounts, and execute structural changes that reduce your taxable income for the entire year. After midnight on December 31, most of those doors close permanently.

Here's what to do before the window shuts.

Strategy 1: Accelerate Deductions Into This Year

If you expect to be in the same or lower tax bracket next year, pulling deductions forward into the current tax year reduces your current-year tax bill. Practical ways to do this:

• Pay any outstanding December invoices from vendors before December 31 (even if they're not due until January)
• Prepay January and February rent if your lease allows it
• Purchase and pay for business supplies you'll need in Q1 of next year
• Pay your business insurance premium renewal early if it covers next year
• Make December payroll before December 31 even if it would normally fall in early January

For cash-basis taxpayers (which includes most small businesses), the rule is simple: deductions are taken in the year you pay, not the year the expense was incurred.

Strategy 2: Defer Income Into Next Year

If you expect to be in the same or lower bracket next year, and your cash flow allows it, consider delaying income collection until January:

• Send December invoices after January 1 (your customer won't pay until January, and you don't recognize the income until received)
• Delay signing contracts that would trigger revenue recognition in December vs. January
• If you're on a project that completes in late December, structure billing so final payment falls in January

Important caveat: don't defer so much income that you create a cash flow crisis in January. This strategy only works if your business has reserves or the deferral is modest.

Strategy 3: Section 179 and Bonus Depreciation Purchases

Section 179 lets you deduct the full cost of qualifying business equipment in the year you buy and place it in service — rather than depreciating it over 5, 7, or 15 years. The 2025 Section 179 limit is $1,220,000.

Bonus depreciation allows an additional first-year deduction on new and used qualified property. The bonus depreciation percentage has been phasing down from 100% (2017–2022) — verify the current rate with your tax advisor for your specific situation.

If you need equipment, vehicles, computers, machinery, or qualified improvement property — buy it before December 31 and place it in service. Buying in January means waiting another year to take the deduction.

Strategy 4: Max Out Retirement Contributions

Retirement contributions are among the most powerful tax deductions available to business owners. Key deadlines:

• SIMPLE IRA: Must have been established by October 1. If you have one, employee salary deferrals must come from actual payroll before December 31. Employer matching can follow a slightly different schedule but should be funded by year-end.
• Solo 401(k): The plan must be established by December 31. Employee elective deferrals must be made from payroll before December 31. Employer profit-sharing contributions can be made up until your tax filing deadline (including extensions).
• SEP-IRA: More flexible — can be established AND funded all the way up to your tax filing deadline plus extensions (typically October 15 for sole proprietors). However, funding it earlier is better for your retirement balance.

If you haven't established any retirement account yet and it's still December, your best immediate option is a SEP-IRA — it's the easiest to open and has the most flexibility on funding timing.

Strategy 5: Review S-Corp Salary for Reasonableness

If you operate as an S-Corp, your W-2 salary must be "reasonable" for the work you perform. But reasonable cuts both ways:

• If your salary is set too high, you may be paying unnecessary payroll taxes
• If your salary is set too low and the IRS challenges it, you'll owe back payroll taxes plus penalties

Before year-end, review your S-Corp salary relative to your net income and what the market would pay someone in your role. If adjustment is needed, run a corrected payroll before December 31. Adjusting after year-end is significantly more complicated.

Strategy 6: Harvest Tax Losses in Investment Accounts

If you hold investments that have declined in value, you can sell them before December 31 to realize a capital loss. That loss offsets capital gains dollar for dollar — and up to $3,000 of excess losses can offset ordinary income per year. Losses beyond that carry forward to future years.

One rule to watch: the wash-sale rule prevents you from buying back the same or substantially identical security within 30 days before or after the sale. You can reinvest the proceeds in a different but similar investment to maintain market exposure while capturing the tax loss.

Strategy 7: Make Charitable Contributions

Charitable donations to qualifying 501(c)(3) organizations are deductible in the year they are made. For cash donations, make them before December 31. For non-cash donations (property, equipment, inventory), the item must be transferred before year-end and you'll need proper documentation.

If you're considering a large donation, a Donor-Advised Fund (DAF) lets you contribute a lump sum now (and take the full deduction this year) while distributing grants to specific charities over time. This is useful if you want to bunch multiple years of donations into one high-income year.

Strategy 8: Prepay Q4 Estimated Taxes If You Itemize

If you're itemizing deductions on your personal return (Schedule A), your Q4 state income tax estimated payment — which is technically due January 15 — can be paid before December 31. Paying it in December means you deduct it this year instead of next year.

Note: This only helps if you itemize. If you take the standard deduction ($15,000 single / $30,000 married filing jointly in 2025), prepaying state taxes doesn't change your federal deduction. Also be aware of the $10,000 SALT cap — if you're already at the limit, prepaying adds no benefit.

Strategy 9: Write Off Bad Debts

If you have customers who owe you money and you've determined the debt is uncollectible, you can write it off as a bad debt deduction before December 31. Requirements:

• The income must have previously been reported (accrual-basis taxpayers only — cash-basis taxpayers never included it in income, so there's no deduction)
• You must show you made reasonable efforts to collect
• The debt must be genuinely uncollectible

Review your accounts receivable aging report before year-end. Any invoices that are 90+ days past due with no realistic collection path are candidates for a bad debt write-off.

Strategy 10: Get Your Books Reconciled and Receipts Captured

This is the least exciting item on the list — and arguably the most important. Every strategy above requires accurate books. If your records are a mess, you'll miss deductions you actually deserve and pay tax on money you shouldn't owe.

• Reconcile all bank and credit card accounts through November (and December as soon as the statement closes)
• Categorize all transactions — don't leave things in "uncategorized" or "ask my accountant"
• Capture and attach receipts for all business purchases over $75 (the IRS requires receipts for meals, entertainment, and travel regardless of amount)
• Run a profit and loss statement and review it for anything that looks unusual or missing

NC-Specific: The PTET Election

North Carolina offers a Pass-Through Entity Tax (PTET) election that allows partnerships and S-Corps to pay state income tax at the entity level and take a federal deduction for it — effectively bypassing the $10,000 SALT cap for business owners. The NC PTET election deadline is generally March 15 of the following year, but the tax itself must be paid by December 31 to get the federal deduction in the current year.

If your NC business is structured as an S-Corp or partnership and you haven't explored the PTET election, this is worth an immediate conversation with your tax advisor. For business owners with significant NC income, this election can save $5,000–$20,000+ per year.

Your Year-End Checklist

• Accelerate December expenses — pay before year-end
• Consider deferring December invoices to January if cash flow allows
• Evaluate Section 179 or bonus depreciation equipment purchase
• Max out retirement contributions (establish Solo 401(k) by Dec 31)
• Review S-Corp W-2 salary for reasonableness
• Harvest tax losses in investment accounts (watch wash-sale rule)
• Make charitable contributions before December 31
• Prepay Q4 state estimated taxes if you itemize
• Review AR aging and write off uncollectible bad debts
• Reconcile all bank/credit card accounts through year-end
• Explore NC PTET election with your tax advisor
• Schedule year-end tax planning call with your accountant