2026 Year-End Tax Planning for Business Owners: 15 Moves Before December 31
Rick Patel
on
Introduction
With three months left in the year, most of the 2026 tax bill is already shaped by what happened between January and September. What remains open is timing, structure, and a handful of deadlines that do not move. Owners who wait for a January meeting with their preparer often learn that the best options expired on December 31.
2026 is the first full planning year under the One, Big, Beautiful Bill Act (OBBBA, Public Law 119-21). It made 100% bonus depreciation permanent, raised Section 179 limits, restored current deduction of domestic research costs, and changed the rules for 1099 reporting, SALT deductions, and charitable giving. Some help. Others trap owners who assume last year's playbook still applies.
This guide covers 15 moves worth evaluating before year end, using 2026 figures confirmed against IRS guidance. It is written for founders, CFOs, and owners of S corporations, partnerships, and C corporations. Not every move fits every business.
Key Takeaways
- Equipment deductions for 2026 generally require the property to be placed in service by December 31, 2026.
- The 2026 Section 179 limit is $2,560,000, with the phase-out beginning once qualifying property placed in service exceeds $4,090,000.
- The 2026 401(k) employee deferral limit is $24,500, and the total defined contribution limit is $72,000.
- The individual SALT deduction cap is $40,400 for 2026, subject to a phase-down when modified adjusted gross income exceeds $505,000.
- The 1099-NEC and 1099-MISC reporting threshold is $2,000 for 2026 payments, and 1099-NEC forms are due February 1, 2027.
- Outcomes depend on entity type, state rules, and the facts of each business, so confirm with a CPA before acting.
Build the Baseline Before You Spend a Dollar
Move 1: Run a Year-End Tax Projection
A projection compares year-to-date results with expected full-year taxable income, then tests each decision against it. It shows whether you are heading toward a higher bracket, a deduction phase-out, or an underpayment.
Use it to check estimated taxes as well. Individuals, including pass-through owners, generally avoid underpayment penalties by paying at least 90% of the 2026 tax or 100% of the 2025 tax (110% if 2025 adjusted gross income exceeded $150,000). The fourth installment is due January 15, 2027 for individuals and December 15, 2026 for calendar-year C corporations. Our guide to quarterly estimated tax payments explains the mechanics, and the Form 1040-ES package lists the 2026 schedule.
Move 2: Revisit Entity Structure and S Corporation Pay
Entity choice drives self-employment tax, QBI eligibility, and state exposure. An S corporation can reduce payroll tax on distributions, but shareholder-employees who perform services generally must receive reasonable compensation through payroll first. There is no fixed percentage; it is a facts-and-circumstances judgment based on duties, hours, and market pay.
Year end is the time to confirm that 2026 payroll reflects that judgment. A low salary invites scrutiny, while an unnecessarily high one gives up savings. If the business has outgrown its structure, raise it before January. Our entity setup and structuring support covers new entities and restructuring.
Move 3: Protect the QBI Deduction
The Section 199A deduction allows eligible pass-through owners to deduct up to 20% of qualified business income, and OBBBA made it permanent. For 2026, the taxable income thresholds are $201,750 for single filers and $403,500 for joint filers, per Rev. Proc. 2025-32. Above those thresholds, the deduction can be limited by W-2 wages, property basis, and the specified service business rules.
The phase-in range is now $75,000 for single filers and $150,000 for joint filers, ending at $276,750 and $553,500. A new $400 minimum deduction applies to owners with at least $1,000 of qualified business income.
Move 4: Manage Income and Expense Timing
Cash-method businesses can generally defer income by moving December invoices into January and accelerate deductions by paying expenses before year end. Some prepaid expenses qualify under the 12-month rule, but not every prepayment does. Accrual-method businesses follow the all-events and economic performance tests, so an accrual is rarely as simple as writing a check.
Deferral only helps if next year's rate is not higher, so test it against your projection.
Capital Investment Moves Under the 2026 Depreciation Rules
Move 5: Use 100% Bonus Depreciation
Bonus depreciation is permanently set at 100% for qualified property acquired after January 19, 2025, according to IRS guidance issued under Notice 2026-11. It generally applies to tangible property with a recovery period of 20 years or less, and to certain used property. Property must be placed in service by December 31 to count for 2026. Ordering equipment is not enough.
Taxpayers can elect out by property class. Many states do not conform to federal bonus depreciation, so check the state impact first.
Move 6: Compare Section 179 With Bonus Depreciation
For 2026, the Section 179 limit is $2,560,000, and it phases out dollar for dollar once qualifying property placed in service exceeds $4,090,000. Section 179 is limited to taxable income from your active businesses, while bonus depreciation can create or increase a loss. Section 179 also lets you choose which assets to expense. For sport utility vehicles, the Section 179 cost is capped at $32,000.
The right mix depends on income, state conformity, and future plans. Expensing everything now can leave fewer deductions for a later, higher-income year.
Move 7: Consider a Cost Segregation Study
If you bought, built, or improved a building, a cost segregation study can reclassify components such as fixtures, land improvements, and certain interior finishes into shorter recovery classes. Those assets may then qualify for bonus depreciation. Studies can also cover property placed in service in earlier years, generally through an accounting method change filed with the return.
The study needs engineering documentation, so start early. It also increases depreciation recapture exposure on a sale.
Move 8: Check Qualified Production Property
OBBBA added Section 168(n), an election to deduct up to 100% of the basis of nonresidential real property used in manufacturing, production, or refining. Construction must have begun after January 19, 2025, and the property must be placed in service by December 31, 2030. Interim IRS guidance in Notice 2026-16 covers definitions, elections, and recapture if the property later stops qualifying.
Manufacturers planning an expansion should test eligibility before design decisions are locked.
Move 9: Deduct Domestic Research Costs
Section 174A restores current deduction of domestic research and experimental expenditures paid or incurred in tax years beginning after December 31, 2024. Businesses may instead capitalize and amortize them over at least 60 months. Foreign research must still be amortized over 15 years, according to the IRS business provisions summary.
Eligible small businesses could elect retroactive treatment for earlier years, with a deadline of July 4, 2026, so confirm with your CPA whether that election was made. Software, product design, and process improvement costs may qualify, and the R&D credit should be reviewed alongside.
Retirement and State Tax Moves
Move 10: Fund Retirement Plans
Retirement contributions reduce taxable income and build owner wealth at the same time. The 2026 limits under IRS Notice 2025-67 and the IRS announcement are:
- 401(k) employee deferrals: $24,500, plus an $8,000 catch-up at age 50 and over, or $11,250 at ages 60 to 63.
- Total defined contribution limit (employee and employer combined, excluding catch-up): $72,000.
- SIMPLE IRA: $17,000, plus a $4,000 catch-up at age 50 and over.
- IRA: $7,500, plus a $1,100 catch-up at age 50 and over.
Employee deferrals generally must be made through payroll by December 31, while employer contributions to many plans can be made by the return due date, including extensions. Employees whose prior-year FICA wages exceeded $150,000 generally must make catch-up contributions on a Roth basis, so confirm your plan is administered accordingly.
Move 11: Evaluate the Pass-Through Entity Tax
The individual SALT deduction cap is $40,400 for 2026 ($20,200 if married filing separately). It phases down toward a $10,000 floor when modified adjusted gross income exceeds $505,000, according to the IRS correction notice for Form 1040-ES.
Many states let partnerships and S corporations elect to pay state income tax at the entity level, which can produce a business-level deduction. Elections, payment deadlines, and credit rules vary by state, and some require payment before year end. Multistate owners should review state and local tax compliance before December.
Compliance and Workforce Moves
Move 12: Clean Up 1099 and Payroll Records
The reporting threshold for most Forms 1099-NEC and 1099-MISC rose from $600 to $2,000 for payments made in 2026, as shown in the IRS Form 1099 instructions. A higher threshold is not a reason to skip vendor onboarding. Collect Forms W-9 now to avoid a January scramble and backup withholding problems.
Form 1099-NEC is due January 31, but that date falls on a Sunday in 2027, so the deadline moves to February 1, 2027. Also confirm worker classification and payroll deposits. Our 1099 contractor tax planning checklist provides a working list.
Move 13: Review Employee Benefits and Credits
Employers can contribute up to $2,500 per year toward an employee's or dependent's Trump Account. These contributions are generally deductible by the employer and excluded from the employee's taxable income, with funding beginning July 4, 2026, per the IRS Working Families Tax Cuts page.
The employer-provided child care credit now covers 40% of qualified expenses up to $500,000, or 50% up to $600,000 for eligible small businesses. Each credit carries documentation and eligibility rules, so gather support before year end.
Giving and Ownership Transition Moves
Move 14: Plan Charitable Giving
Beginning in 2026, C corporations can deduct charitable contributions only to the extent they exceed 1% of taxable income, subject to an overall 10% limit. For example, a corporation with $1,000,000 of taxable income before charitable deductions cannot deduct the first $10,000 it gives. A $30,000 gift would produce a $20,000 deduction. Concentrating gifts in one year can preserve more of it.
For owners who do not itemize, IRS Topic 506 notes a deduction of up to $1,000 ($2,000 if filing jointly) for cash gifts to certain qualifying organizations beginning in 2026.
Move 15: Look Ahead to Exit and Ownership Planning
For C corporation stock issued after July 4, 2025, the qualified small business stock exclusion under Section 1202 was expanded. The exclusion generally phases in at 50% after three years, 75% after four, and 100% after five, with a per-issuer gain limit of $15 million. Eligibility turns on entity type, business activity, and asset tests, so confirm it before relying on it.
The 2026 basic estate exclusion is $15,000,000 per decedent, and the annual gift exclusion is $19,000 per recipient, per the IRS 2026 inflation adjustments. Year end is also a natural time to update a valuation, buy-sell agreement, or succession planning roadmap.
Common Year-End Mistakes
- Buying equipment in December that is not placed in service until January, which moves the deduction to 2027.
- Spending cash to save tax without a business case, since a deduction offsets only part of the cost.
- Ignoring state conformity, because federal and state depreciation, PTET, and charitable rules can differ.
- Setting S corporation salary low without documentation of how it was determined.
- Missing entity-level state election or payment deadlines that fall before December 31.
How Virtue Advisors Supports Year-End Planning
Virtue Advisors helps owners turn these options into a sequenced plan: a projection, a review of entity and state exposure, and a calendar of what must be completed before December 31. Our team supports business tax planning and filings, ongoing monthly accounting, and CFO and controller services for owners who want forecasting alongside compliance.
Conclusion
Year-end tax planning works best when it starts while there is still time to act. The choices above interact, and the wrong sequence can waste a deduction or trigger a state issue. A short projection review this October or November will show which moves matter for your business. If you would like a second set of eyes, a conversation with a Virtue Advisors CPA is a practical place to begin.
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