Year-End Tax Planning Checklist for Small Business Owners

As the year winds down, now is the time to make strategic decisions that can lower your tax liability and set your business up for a strong start to the new year. Year-end planning isn’t just about deductions — it’s about taking a snapshot of your operations, cleaning up your books, and positioning your company for success.

Below is a practical checklist to help you close out the year confidently and tax-efficiently.

1. Review Your Financial Statements

Before doing anything else, make sure your books are accurate.

Reconcile bank and credit card accounts through year-end.
Match accounts receivable (A/R) and accounts payable (A/P) to your general ledger.
Verify your inventory counts if applicable — shrinkage, obsolescence, and miscounts can distort your cost of goods sold and taxable income.
Clean up personal expenses accidentally paid through the business.

Starting here will help you and your tax planner to develop strategies to implement to increase tax savings and help with next year’s growth targets. Additionally, having accurate financials ensures that every deduction and credit you take is defensible and that your tax return reflects reality.

2. Evaluate Your Taxable Income and Timing Opportunities

Depending on whether your business is on a cash or accrual basis, you can often shift income and expenses strategically:

Cash basis: Defer income by delaying December invoices until January and accelerate expenses by paying bills or buying supplies before year-end.
Accrual basis: Focus on recording legitimate year-end expenses and verifying revenue cutoffs.

If your 2025 income is higher than usual, it may make sense to prepay certain expenses to smooth taxable income over multiple years.

3. Purchase Equipment or Assets Before Year-End

Under Section 179 and bonus depreciation rules, businesses can often deduct the full cost of qualifying equipment or vehicles placed in service before December 31.
This includes:

Computers
Machinery
Office furniture
Software or technology upgrades

Tip: Make sure assets are in service (not just ordered) before December 31 to qualify for 2025 deductions.

4. Review Employee Compensation and Benefits

Wages:
- Bonuses: Paying employee or owner bonuses before year-end can provide a current-year deduction.
- If you are a self-employed owner, consider paying your children. If you do, gather the appropriate documentation so that W-2s can be issued.
Retirement plans:
- Consider setting up or contributing to a SEP IRA, SIMPLE IRA, or 401(k).
- Employer contributions are deductible, and certain plans may qualify for startup tax credits.
Health benefits:
- If you have a high-deductible health plan, review HSA contribution options.
- Explore QSEHRA or ICHRA reimbursement plans if traditional insurance is too costly.
Payroll review: Verify W-2 wages, contractor payments (1099s), and ensure all payroll taxes are properly accrued.

5. Make the Most of Business Deductions

Go through your expense categories and ensure nothing is missed:

Home office deduction (if you regularly and exclusively use part of your home for business)
Business mileage (track with an app or log — mileage rates change annually)
Professional fees (legal, accounting, consulting)
Continuing education and training
Marketing and advertising (including website hosting, domain renewals, and social media ads)
Software subscriptions and SaaS tools

Small recurring expenses can add up — document them properly to claim every allowable deduction.

6. Clean Up Owner Draws, Loans, and Capital Accounts

For partnerships, S corps, and LLCs, make sure your owner distributions and capital accounts are in order:

Review owner loans to and from the business.
Verify that reasonable compensation has been paid to S corp owners to avoid IRS scrutiny.
Update shareholder or member basis schedules if your tax preparer requires them.

This cleanup helps prevent balance sheet mismatches and ensures the correct tax basis for future years.

7. Review Estimated Tax Payments

Check whether you’ve paid enough in estimated taxes through Q4.
Underpaying can trigger penalties, even if you break even at year-end.

Recalculate based on your current year’s profit trends.
If you’re underpaid, consider a fourth-quarter catch-up payment before January 15.

For S corps or partnerships, if you’re not the only shareholder/partners, remind the other shareholders/partners that pass-through income may require personal estimated payments as well.

8. Revisit Your Entity Structure

As your business grows, the entity type you started with might not be the best fit anymore.

S corporation election: If you’re profitable and not already an S corp, it may reduce self-employment taxes.
Partnership vs. LLC vs. sole prop: Review liability protection and tax treatment differences.
C corporation: For some mid-size or multi-owner businesses, the 21% flat tax rate may make sense — but consider double taxation tradeoffs carefully.

Discuss structure optimization with your CPA before year-end if a 2026 election might benefit you.

9. Assess Your Tax Credits

Many small business owners overlook valuable credits that directly reduce tax owed. Check eligibility for:

Research & Development (R&D) Credit
Work Opportunity Tax Credit (WOTC) for hiring certain employees
Energy-efficient property or vehicle credits
Disabled access credit for improving accessibility
Paid family and medical leave credits (if applicable)

Credits are powerful because they reduce tax dollar for dollar, unlike deductions that only reduce taxable income.

10. Plan for Growth — Not Just Taxes

Finally, year-end tax planning should align with your strategic goals, not just minimizing this year’s bill.

Review cash flow, debt levels, and pricing strategies.
Forecast next year’s revenue and expenses.
Build a tax reserve account so next year’s estimated payments don’t strain cash.
Set up quarterly review meetings with your accountant to stay ahead, not just reactive.

Tax strategy is most effective when integrated into your overall financial plan — not something revisited only in March or April.

Action Plan

Smart tax planning doesn’t happen after the year ends — it happens now.
By reviewing income timing, maximizing deductions, and ensuring your books and records are audit-ready, you can reduce surprises and take control of your results.

If you’re a small or mid-size business owner and aren’t sure which of these moves fit your situation, now’s the time to talk to a CPA. If your CPA hasn’t or doesn’t cover most of these items, please send me a message, and we can discuss what’s best for your unique situation. A quick year-end review can often save thousands in taxes and position your business for a cleaner, stronger year ahead.

— Brendan Tiedeman, CPA