Year-End Tax Moves for Small Business Owners: A Before-December-31 Checklist

Year-end tax moves checklist for small business owners by Robert Allen Bautista, Kansas City tax preparerThe last six weeks of the year are when small business owners have the most control over their tax bill. Once January 1 arrives, most of these choices are locked in. Here is a practical checklist to work through before December 31.

1. Get your books current first

You cannot plan around numbers you do not have. Reconcile your bank and credit card accounts through October or November, clear out uncategorized transactions, and run a year-to-date profit and loss. Then estimate December. Every decision below depends on knowing roughly where profit will land.

2. Decide whether to accelerate expenses

If you use cash-basis accounting, expenses generally count in the year you pay them. If this year's profit is high, paying January's supplies, software renewals, or professional fees in December can lower this year's tax. Only buy what the business actually needs; spending a dollar to save thirty cents is not a strategy.

3. Time big equipment purchases carefully

Equipment, vehicles, and computers placed in service by December 31 may qualify for Section 179 expensing or bonus depreciation, which can let you deduct much of the cost this year instead of spreading it out. The key phrase is placed in service: the asset must be delivered and ready to use, not just ordered. Vehicles have special limits, so check before you buy.

4. Consider deferring income, if it makes sense

Cash-basis businesses can sometimes send late-December invoices in early January so the payment lands next year. This helps if you expect to be in a lower bracket next year. It backfires if next year will be your bigger year, so look at both years together.

5. Fund retirement accounts

A solo 401(k) or SEP IRA can shelter a large share of self-employment profit. Setting up a solo 401(k) before year end gives you the most options (newer rules let some sole proprietors open one later, but the deadlines are tricky), while a SEP IRA can usually be opened and funded up to your filing deadline, including extensions. If you have employees, compare plans before choosing.

6. Check your estimated tax payments

The fourth-quarter estimated payment is due January 15. Compare what you have paid against the safe harbor: 100% of last year's total tax (110% if last year's AGI was over $150,000) or 90% of this year's. If you are short, a larger January payment can reduce or avoid an underpayment penalty.

7. If you have an S corporation, run the payroll numbers

Owner-employees must take a reasonable salary through payroll before taking distributions. Confirm your salary for the year is reasonable for the work you do, that payroll tax deposits are current, and that health insurance premiums for over-2% shareholders are added to your W-2 correctly.

8. Collect W-9s and prepare for 1099s

If you paid contractors this year, make sure you have a Form W-9 on file for each one now, not in late January. Forms 1099-NEC are due to contractors and the IRS by January 31, and chasing taxpayer IDs in January is the most common cause of late filing.

9. Clean up the small stuff

Write off invoices you truly will not collect (accrual-basis businesses), log business mileage you have not recorded yet while you still remember the trips, and save receipts for anything over a few hundred dollars. If you work from home, measure your office space and note how it is used.

10. Book a planning meeting

A one-hour year-end meeting with a tax professional in November or early December is worth far more than a rushed conversation in March, when the year is closed and most options are gone.

Bottom line

Get the books current, estimate profit, then decide on timing: expenses, equipment, income, and retirement contributions. Check estimates against the safe harbor and gather W-9s. A few hours now can save real money and a stressful filing season.

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

More from Robert Allen Bautista

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