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

Some year-end tax moves only count if they happen by December 31, 2026. Buying and installing equipment, paying expenses, running S corp payroll, and making charitable gifts all fall into this group. Miss the date and the deduction usually moves to 2027.

Other moves can wait. You can still fund a SEP IRA, adopt a solo 401(k) in some cases, make a New Jersey BAIT election, and pay your fourth-quarter estimate after the year ends. This checklist covers both groups, with the 2026 numbers you need and links to the IRS and New Jersey sources behind them.

Key Takeaways

• Equipment must be placed in service by December 31, 2026, to qualify for Section 179 or bonus depreciation in 2026. Ordering it is not enough.
• Some retirement plans, including a SEP IRA and, for some owners, a solo 401(k), can still be set up after December 31.
• New charitable rules start in 2026: a cash deduction for non-itemizers, plus a 0.5% floor for itemizers.
• The SALT cap is $40,400 for 2026, and it phases down once modified AGI passes $505,000.
• The fourth-quarter estimated tax payment is due Friday, January 15, 2027.

2026 numbers to know

Keep this table handy while you work through the checklist. Each figure comes from the IRS source listed.

1. Get your books current first

Every other step depends on accurate numbers. You can't judge whether to buy equipment, prepay rent, or bump up a retirement contribution until you know your real 2026 profit.

1. Reconcile every bank and credit card account through November now, then through December as soon as statements arrive.
2. Clear out uncategorized transactions and "ask my accountant" entries.
3. Review accounts receivable and payable so you know what's owed both ways.
4. Run a year-to-date profit and loss statement and project it to December 31.

If you keep up with a monthly bookkeeping checklist, this should take an afternoon. If you're several months behind, start with this guide to catching up on bookkeeping before you make any tax decisions.

2. Equipment and vehicles: Section 179 vs. bonus depreciation

Both rules let you deduct the cost of business equipment in the year you start using it, instead of spreading it out over several years.

Section 179 is an election that lets a business expense the cost of qualifying property in the year it's placed in service. For 2026, the limit is $2,560,000. That limit shrinks dollar for dollar once the Section 179 property you place in service during 2026 tops $4,090,000, according to Rev. Proc. 2025-32.

Bonus depreciation is an additional first-year depreciation deduction. It's now permanent at 100% for eligible property acquired after January 19, 2025, per IRS guidance issued in 2026 (IR-2026-06 and Notice 2026-11).

The December 31 rule

The key date is when the asset is placed in service, meaning ready and available for its intended use. IRS Publication 946 is clear that placing the property in service is what counts. A truck ordered on December 20 but delivered on January 5 is a 2027 asset.

1. List any equipment, computers, furniture, or vehicles you plan to buy in the next year.
2. Confirm delivery and setup dates. If an item won't be in use by December 31, don't count on a 2026 deduction.
3. Keep invoices, delivery receipts, and a note of the in-service date.
4. Ask your advisor which method fits. Section 179 and bonus depreciation have different rules, and a big deduction in a low-income year may not be the best use of either.

3. Time your income and expenses

Your accounting method decides how much control you have over timing. Cash-basis businesses generally record income when received and expenses when paid. Accrual-basis businesses generally record them when earned or incurred.

Cash-basis businesses

1. Consider paying deductible bills in December instead of January.
2. If it makes sense, delay sending some December invoices so payment lands in 2027.
3. Look at prepaying expenses such as insurance or rent. Under the 12-month rule in Treas. Reg. 1.263(a)-4(f), you can generally deduct a prepayment now if the benefit doesn't extend beyond the earlier of 12 months after it begins or the end of the following tax year.

Shifting income is only useful if you expect the same or a lower tax rate in 2027. If 2027 looks like a bigger year, accelerating income into 2026 may be the better move.

Accrual-basis businesses

Year-end employee bonuses get special treatment. Under Treas. Reg. 1.404(b)-1T, compensation paid within 2 1/2 months after the end of the tax year isn't treated as deferred compensation. In practice, a 2026 bonus paid within that window (by mid-March 2027 for calendar-year businesses) may still count for 2026. Confirm the details with your advisor.

Owner-employees and related parties may be treated differently. If you plan to pay yourself or a family member a year-end bonus, ask your advisor before you count on a 2026 deduction.

4. Max out retirement contributions

Retirement plans are one of the few deductions where some deadlines run past December 31. The limits for 2026, from IR-2025-111 and the IRS cost-of-living table:

See the 2026 limits in the table above. The total defined contribution limit is $72,000, with a $360,000 compensation limit, per the IRS COLA table.

SEP IRA

A SEP lets you contribute up to 25% of compensation, capped at $72,000 for 2026. You can set up a SEP "as late as the due date (including extensions) of your income tax return," according to the IRS page on retirement plans for self-employed people. That makes it a useful plan if you only learn your final profit in the spring.

Solo 401(k)

A solo 401(k) can allow larger contributions at lower income levels, because you contribute as both employee and employer. Some older articles say the plan must exist by December 31. That's outdated. IRS Publication 560 says a sole proprietor with no employees can adopt a 401(k) plan after year-end, as long as it's adopted by the tax filing deadline, not counting extensions.

Employee deferrals in a plan's first year have their own timing rules. To be safe, aim to adopt the plan and make your 2026 deferral election by the original April 15, 2027 deadline, and confirm the details with your advisor or plan provider.

5. Plan charitable giving under the 2026 rules

The One Big Beautiful Bill Act changed charitable deductions, and most of these changes start in 2026, according to the IRS summary of the law.

1. Non-itemizers: You can deduct up to $1,000 ($2,000 married filing jointly) of cash gifts to charity, even if you take the standard deduction. Noncash gifts don't qualify (26 U.S.C. 170(p)).
2. Itemizers: You can only deduct contributions above 0.5% of your contribution base, under 26 U.S.C. 170(b)(1)(I). Small gifts may now produce little or no deduction.
3. C corporations: The IRS describes a new floor under the law, under which corporations can deduct only the contributions that exceed 1% of taxable income. The 10% cap remains. Confirm with your advisor how and when this applies to your corporation.
4. 37% bracket: Under 26 U.S.C. 68, itemized deductions for taxpayers in the top bracket are reduced by a 2/37 factor for tax years after 2025. This lowers the value of each deductible dollar, so run the numbers before a large gift.

Because the itemizer floor is new, some owners may get more value by grouping several years of gifts into one year. That's a judgment call worth discussing with your advisor.

6. S corp owners: payroll and health insurance

S corporation owners have two year-end items that only work if they run through payroll before December 31.

1. Reasonable salary. The IRS expects shareholder-employees to receive reasonable compensation before taking distributions, as explained on its S corporation compensation page. If you've taken distributions all year with little or no salary, fix that in your final 2026 payroll runs.
2. Health insurance for more-than-2% shareholders. Premiums the S corp pays for a more-than-2% shareholder are W-2 wages subject to income tax withholding. Make sure your payroll provider adds them before the final run of the year.

Still running as a single-member LLC or sole proprietor? If you want S corp treatment starting January 1, 2027, file Form 2553 by March 15, 2027, which is 2 months and 15 days after the start of the tax year under the Form 2553 instructions. Before you elect, read this comparison of LLC vs. S corp taxes to see whether the payroll costs are worth it.

7. Review QBI and SALT, and the NJ BAIT election

Qualified business income deduction

The QBI deduction is a deduction of up to 20% of qualified business income for owners of pass-through businesses. It's now permanent, and the law adds a new minimum deduction for tax years after 2025, according to the IRS QBI page.

For 2026, limits start to apply above $403,500 of taxable income for joint filers (fully phased in at $553,500), $201,775 for married filing separately, and $201,750 for other filers. If you're near a threshold, a retirement contribution or equipment purchase could keep you under it.

SALT cap

The state and local tax deduction cap is $40,400 for 2026 ($20,200 married filing separately). It's reduced once modified AGI exceeds $505,000 ($252,500 MFS) but can't drop below $10,000, per an IRS correction to the 2026 Form 1040-ES. Watch out for older articles that list $40,000.

New Jersey BAIT for pass-through owners

New Jersey's Business Alternative Income Tax lets eligible pass-through entities pay tax at the entity level. Key rules from the NJ Division of Taxation and its BAIT FAQ:

1. The election is made each year by the original due date of the return. For calendar-year 2026, that points to March 15, 2027.
2. You must elect before making any BAIT payments, including estimates.
3. The election is electronic only, doesn't carry forward to the next year, and isn't retroactive.
4. Single-member LLCs and sole proprietors can't elect.

If your partnership or S corp plans to make BAIT estimated payments, file the election first.

8. Check your estimated taxes

The fourth-quarter 2026 estimated payment is due Friday, January 15, 2027, per IRS Publication 505. To avoid an underpayment penalty, your total withholding and estimates generally need to cover one of these safe harbors:

• 100% of your 2025 tax
• 110% of your 2025 tax if your 2025 AGI was over $150,000 ($75,000 MFS)
• 90% of your 2026 tax

There's also a skip-January option. If you file your 2026 return and pay the full balance by February 1, 2027, you don't need to make the January payment. For the rest of next year's dates, see the 2027 small business tax deadline calendar.

9. Prepare for W-2s and 1099s

January filing season is easier if you start now.

1. Collect W-9s. Request a Form W-9 from every contractor and vendor you've paid this year. Getting them in December avoids a scramble in late January.
2. Use the new $2,000 threshold. For payments made after December 31, 2025, the reporting threshold for Forms 1099-NEC and 1099-MISC is $2,000, per the IRS information return guide. Gross proceeds paid to attorneys stay at $600. Form 1099-K uses $20,000 and 200 transactions. Our 1099-NEC threshold guide covers the details.
3. Update payroll for new W-2 codes. The 2026 W-2 instructions add box 12 code TP for cash tips, box 14b for the Treasury Tipped Occupation Code, and box 12 code TT for qualified overtime. For the overtime deduction, only the premium portion counts, according to IRS FS-2026-01. Confirm your payroll system tracks tips and overtime separately.

10. Write off bad debts and count inventory

Bad debts

A business debt that's totally worthless can be deducted in full. A partly worthless debt can only be deducted up to the amount you charge off on your books during the year, according to IRS Publication 334 and Tax Topic 453. Review old receivables now and charge off what you don't expect to collect before December 31. This mainly matters for accrual-basis businesses.

Inventory

Inventory is valued at the beginning and end of each tax year, per Publication 334. Schedule a physical count as close to December 31 as you can, and note any damaged or obsolete stock to review with your advisor.

Before December 31 vs. after December 31

Use this table to sort your list by deadline.

How Asquaire can help

Asquaire Financials includes year-end planning in our small business advisory service (from $750 per month) and handles filing through our tax preparation service, starting at $199 for individual returns and $650 for business returns. Our founders are ACCA-qualified with Big Four experience. We're not a CPA firm, so for matters that require a CPA or attorney, we'll tell you so.

Frequently asked questions

Can I still open a retirement plan after December 31?

Yes, in some cases. A SEP IRA can be set up as late as your return due date, including extensions. A sole proprietor with no employees can adopt a solo 401(k) after year-end, by the filing deadline without extensions. For first-year deferrals, aim for April 15, 2027, and confirm with your advisor.

Do I need to buy equipment by December 31 to deduct it?

You need to place it in service by December 31, which is stricter than buying it. The equipment must be ready and available for use in your business. An order placed in December but delivered in January counts for 2027.

When is the fourth-quarter estimated tax payment due?

The fourth-quarter 2026 estimated payment is due Friday, January 15, 2027. You can skip it if you file your 2026 return and pay the full balance by February 1, 2027.

Next steps

Start with clean books, then work through the "before December 31" column while there's still time to act. The items that can wait still need a plan, so put the SEP, solo 401(k), BAIT, and estimate dates on your calendar now. Before any large purchase, bonus, or election, confirm the move with a tax advisor who knows your full picture.

If you'd like a second set of eyes on your year-end numbers, schedule a year-end planning review.

This article is general information, not tax advice for your situation.