Daperis CPAThe Year-End Tax Planning Checklist for Business Owners and Individuals
Most of the tax code's flexibility disappears at midnight on December 31. Once the calendar turns, entire categories of planning that were available in November aren't available anymore, no matter how much you'd like to go back and use them. Contrary to popular belief, the best time to review your tax situation is not April. The best time is the fall, when there's still time to actually make changes. Once you speak to your tax preparer in April, they're mostly limited to just properly reporting what already happened. Any changes at that point likely go into effect the following year. Below are some strategies to consider before year end that can make a difference in your tax planning.
Retirement Contributions
Employer-sponsored retirement plans, including solo 401(k)s and most business retirement plans, generally need to be funded, not just decided on, by December 31 to count for the current year. There is an extended deadline if you have a sole proprietorship, but it's still good practice to have an idea on your number so you can decide what types of contributions to make. The choice between a Roth or a Traditional 401(k) contribution may fluctuate depending on your overall tax situation for the year.
Traditional and Roth IRA accounts are more flexible, with contributions allowed under the filing deadline for the tax year of the contribution.
Charitable Giving, Timed Deliberately
The standard deduction is high enough that itemized deductions, including charitable giving, don't move the needle for many taxpayers in a typical year. "Bunching" multiple years of intended giving into a single year, often through a donor-advised fund, can push you over the itemizing threshold in that one year while you take the standard deduction in the years around it, without changing how much you actually give to charities over time, just when the deduction lands. If you're of the age where required minimum distributions apply, a qualified charitable distribution sent directly from an IRA to a charity can also satisfy some or all of that year's distribution requirement without it counting as taxable income in the first place, which is a different and often better approach than donating cash separately.
Tax-Loss Harvesting
If you're holding investments at a loss, selling before year end to realize that loss can offset gains realized elsewhere in the same year, and a limited amount can offset ordinary income beyond that, with any excess carrying forward. The wash-sale rule disallows the loss if you buy a substantially identical security within 30 days before or after the sale, so this needs to be executed carefully, not as a same-day sell-and-rebuy.
Entity-Level Elections
If your business operates as a pass-through entity in a state with a workaround for the federal cap on state and local tax deductions, more commonly called a PTET election, it is critical to look beyond the election deadline itself. While election deadlines vary by state, many jurisdictions require the associated estimated tax payments to be made before year-end to secure the tax benefit for the current year. Because these payments can be substantial and often necessitate partner approval, you should review your PTET strategy and estimated tax position well before December 31 to ensure you have the necessary cash flow and authorization to act.
Equipment and Depreciation Timing
Section 179 expensing and bonus depreciation both require the asset to actually be placed in service, not merely ordered or paid for, by year end to count for the current year. A piece of equipment sitting in a warehouse or a vehicle still awaiting delivery on December 31 doesn't qualify yet, regardless of when the purchase order was signed. If equipment purchases are part of your year-end plan, the delivery and in-service timeline needs to be confirmed with the vendor well before the deadline, not assumed.
Quarterly Estimated Tax True-Up
Year end is the last real checkpoint to compare what you've paid in estimated taxes against what you're actually going to owe, before the 4th quarterly payment is due in January. If income came in higher than expected, catching that now, including through the withholding timing trick of increasing W-2 withholding late in the year if that option is available to you, is far better than discovering the shortfall at filing time with a penalty attached.
Income and Deduction Timing
If your income is likely to be meaningfully higher or lower next year than this year, whether from a bonus, a sale, a slow season, or a planned change in the business, there's often room to shift the timing of deductible expenses or, for a cash-basis business, invoicing and collections, into whichever year makes more sense. This only works within the bounds of your accounting method and shouldn't be pushed further than what genuinely reflects when the income was earned or the expense incurred, but the timing flexibility that does legitimately exist is worth using deliberately rather than by accident.
Entity and Structure Review
Year end is also a natural checkpoint to revisit bigger structural questions: whether an S-corp election makes sense given how the business performed this year, whether a retirement plan structure still fits, whether estimated tax payments need to be recalculated for the year ahead based on how income has trended. These aren't decisions to make in a rush during the last week of December, which is exactly why the review needs to start well before then.
The Takeaway
Tax planning is not a task to be squeezed into a single afternoon in December. The moves that matter most, such as entity elections, equipment timing, retirement funding, and charitable strategy, require significant runway to execute effectively. Instead of rushing to make decisions at year-end, treat tax planning as an ongoing process. When you build a strategy throughout the year, you do not just react to the calendar; you execute with confidence.
For the full mechanics behind the quarterly true-up mentioned above, see our self-employed owner's survival guide to quarterly taxes.
Disclaimer: This article is for educational and informational purposes only and is not intended as financial, investment, legal, or tax advice. The author assumes no liability whatsoever in connection with its use. This content is not an exhaustive explanation of any topic, practice or process. You should always seek the advice of a licensed professional before making any accounting, tax, financial, investment or legal decision.