The best year-end tax planning for small business owners starts with a current projection, then works through a short list of owner-level decisions: your salary and final payroll, retirement contributions, equipment timing, team bonuses, expense reimbursements, the qualified business income deduction, your state's pass-through entity tax, and your estimated payments. Most of these have to be settled before your last payroll or by December 31. Done in November, they are routine. Done in late December, many are no longer available.
Year-end checklists for individuals are everywhere. This one is for the owner, the person whose personal tax bill and business tax bill are really one number. If your business is a service firm, a practice, or a trade with healthy margins, the decisions below tend to move that number more than any single deduction you might chase in December.
Here are the ten moves Harness Advisory Platform works through with owners every fall, in roughly the order they need to happen.
Every other move depends on this one. A projection uses your books through October, adds a realistic estimate for November and December, and shows where taxable income will land for both the business and your household. If your books are not decision-ready (reconciled, categorized, and current), the projection will be wrong in ways you will not notice until spring. Clean up first, then project.
For S-Corp owners, the IRS expects a reasonable salary before distributions, based on the work you actually perform. A salary set years ago may no longer fit a business that has doubled. Your final payroll is also where several other items have to land: health insurance premiums the business paid for you as a more-than-2% shareholder belong in your W-2 wages under IRS Notice 2008-1, and your retirement deferrals have to come out of 2026 paychecks. Once that last payroll runs, these levers are largely locked.
IRS Notice 2025-67 sets the 2026 401(k) employee deferral limit at $24,500, with an $8,000 catch-up for those 50 and older and $11,250 for ages 60 through 63. Total contributions to a defined contribution plan can reach $72,000 per participant not counting catch-up contributions. For S-Corp owners, profit-sharing contributions are calculated on W-2 wages, which ties this move directly back to your salary decision.
If your profits regularly outrun your current plan, this is the time to model a cash balance plan or a cross-tested profit-sharing design. Under the SECURE Act, many new qualified plans, including some defined benefit plans, can be adopted as late as the business's filing deadline and still count for the prior year. That flexibility is real, but the design work, actuarial input, and employee cost analysis take time. Start the conversation now.
IRS Revenue Procedure 2025-32 sets the 2026 Section 179 expensing limit at $2,560,000, and 100% bonus depreciation is now permanent for qualifying property. Both require the asset to be in service, ready for use, by year-end. Two other points are easy to miss. Many states do not follow federal bonus depreciation, so the state result may differ. And a deduction this year means less depreciation in future years, which matters if you expect to be in a higher bracket later or plan to sell the business.
A cash-basis business deducts bonuses when they are paid. An accrual-basis business can often deduct employee bonuses in 2026 if the liability is fixed by year-end and the bonus is paid within two and a half months, though that rule generally does not apply to owner-employees or related parties. Bonuses also carry payroll taxes and set expectations, so they should be a compensation decision first and a tax decision second.
Under an accountable plan, your business can reimburse you tax-free for business mileage, a home office, a cell phone, and travel, and deduct the cost. The IRS requires that expenses be substantiated and that excess advances be returned within a reasonable period. Get expense reports submitted and paid before the books close, and put a written plan in place if you do not have one.
The QBI deduction allows up to 20% of qualified business income to be deducted, and OBBBA made it permanent. For 2026, the limitations begin to phase in above taxable income of $201,775 for single filers and $403,500 for joint filers. Above those levels, the deduction can be limited by the W-2 wages your business pays, and for certain service businesses it can phase out entirely. Salary, retirement contributions, and equipment timing all move taxable income, so the QBI result should be checked as part of the projection rather than discovered at filing.
With the individual state and local tax deduction capped at $40,400 for 2026 and reduced toward $10,000 once modified adjusted gross income passes $505,000, many states allow partnerships and S-Corps to elect to pay state income tax at the entity level, where it is deductible against business income. IRS Notice 2020-75 confirmed that approach, and it remains available. Election deadlines, payment timing, and credit rules vary widely by state, and a cash-basis business generally needs to pay by December 31 to deduct the tax in 2026.
The fourth-quarter estimated payment is due January 15, 2027. If you underpaid earlier in the year, extra federal withholding on your December payroll is treated as paid evenly through the year and can cover earlier quarters, while a January estimate only helps the fourth. This is also the month to collect missing W-9s. For payments made in 2026, the Form 1099-NEC reporting threshold rises to $2,000, so update your vendor tracking to match.
The following is a fictional example created to illustrate how Harness Advisory Platform would approach this situation. It is not a real client.
Teresa owns an architecture firm in Georgia with nine employees and about $2.1 million in revenue. The firm is an S-Corp, and Teresa has paid herself $120,000 for three years while revenue grew more than 50%. Her projection in early November shows profit landing well above last year.
Three findings stand out. Her salary is low for the role she plays, and because architecture firms are not treated as specified service businesses for QBI purposes, her deduction at this income level depends partly on the W-2 wages the firm pays. A modest salary increase on the final payrolls supports a defensible compensation position, raises the base for her profit-sharing contribution, and helps the QBI calculation. Second, Teresa had been paying state income tax on her firm's profit personally, with most of it lost to the SALT cap. Our advisory team reviews Georgia's elective pass-through entity tax with her, confirms the election and payment timing, and models the federal result. Third, her 401(k) has no profit-sharing feature, so the team begins modeling plan design for 2027 and checks whether a cash balance plan could still be adopted for 2026.
Two items get a firm no. A $90,000 plotter and workstation upgrade will not arrive until late January, so it moves to next year's plan. And a proposed year-end bonus for Teresa herself is dropped in favor of the salary adjustment, which is cleaner.
These ten moves interact. Salary affects retirement contributions, which affect the QBI deduction, which affects whether an equipment purchase is worth accelerating. Sorting that out is the difference between recording history and building a future, and it is what Harness Advisory Platform does with owners every fall. Your business is your most important investment. Treat the year-end review like an investment decision.
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The highest-impact moves are usually owner-level: setting a reasonable salary, maximizing retirement contributions, timing equipment purchases, and checking the QBI deduction and state pass-through entity tax options. Each depends on an accurate projection of your full-year income. Generic deduction tips matter far less than getting these decisions right. Start in early November so payroll-dependent items can still be changed.
Possibly, if your current salary is low for the work you do or your business has grown significantly. A higher salary increases payroll taxes but can strengthen your reasonable compensation position, raise your retirement contribution base, and sometimes improve your QBI deduction. The change has to happen through payroll before year-end. Model it first so the tradeoffs are clear.
In many cases, yes. Under the SECURE Act, a new qualified plan can generally be adopted up to your business's filing deadline, including extensions, for employer contributions. Employee deferrals are stricter, and S-Corp owners generally need deferrals withheld from 2026 paychecks. Plans like cash balance designs take time to set up, so begin now.
For many owners of S-Corps and partnerships in states with an income tax, yes. Paying state tax at the entity level can make it deductible against business income instead of being limited by the individual SALT cap. Rules, deadlines, and credits vary by state. A projection should confirm the federal benefit before you elect.
It depends on your accounting method. Cash-basis businesses generally must pay bonuses by December 31. Accrual-basis businesses can often deduct employee bonuses paid within two and a half months after year-end, but that rule usually does not apply to owners or related parties. Check your method before promising year-end bonuses.
