As 2026 draws to a close, it is worth reviewing whether decisions about retirement benefits, equipment purchases, income, expenses, and business structure could improve your tax position.
Federal legislation enacted in 2025 extended some provisions and created or expanded others. The best choices depend on your business’s legal and tax structure, cash flow, profitability, staffing, and plans for growth. A deduction that reduces this year’s tax bill is not necessarily the best business decision overall.
Review retirement-plan options
A retirement plan can help business owners and employees save for the future while potentially reducing current taxable income.
Options include SEP IRAs, SIMPLE IRAs, and 401(k) plans. They differ in contribution opportunities, administrative requirements, costs, and the benefits available to employees and owners. A plan that works well for a solo business may be less suitable for a company with a growing workforce.
If you already have a retirement plan, review whether contributions and employee communications are on track. If you do not, consider whether establishing one could support both your financial goals and your efforts to attract and retain employees.
Deadlines for adopting a plan and making deductible contributions vary by plan type and business circumstances, so confirm the applicable timing before relying on a year-end opportunity.
Evaluate planned equipment and facility investments
Federal rules may allow your business to deduct some or all of the cost of qualifying equipment, software, and certain building improvements sooner than under ordinary depreciation schedules.
Section 179 expensing and bonus depreciation can make investments more affordable after tax, and eligible new or used property may qualify.
Specialized rules may apply to improvements to nonresidential buildings and to certain manufacturing or production facilities.
The key question is not simply whether a purchase creates a deduction. Consider whether the asset is needed, whether the business can afford it, when it will be ready for use, and how the purchase affects financing and operations.
Tax benefits depend on eligibility and timing, and large deductions can affect other tax provisions. Planning capital expenditures over several years may be more valuable than making an unnecessary purchase solely to reduce this year’s taxable income.
Think strategically about the timing of income and expenses
For many sole proprietors and pass-through businesses, business income generally flows to the owner’s individual tax return. Depending on the accounting method and the circumstances, the timing of income and deductible expenses may affect when tax is paid.
If you expect to be in a similar or lower tax bracket next year, deferring income or accelerating eligible expenses may be worth considering. If you expect a higher tax rate next year, the reverse may make sense.
These strategies are not simply a matter of moving invoices or payments across December 31. Tax rules govern when income is recognized and when expenses qualify for deduction. Bonus timing, in particular, can depend on the business’s accounting method and the terms of its bonus arrangements. Review the expected results for both years before changing decisions about billings, collections, purchases, or compensation.
Coordinate state taxes and the qualified business income deduction
Owners of partnerships and S corporations may be able to reduce the effect of the limit on federal state-and-local-tax deduction through a state-level pass-through entity tax election.
Under such an election, the business pays certain state income taxes at the entity level rather than having the owners pay them individually. Availability, deadlines, and benefits vary by state and business structure, so the election should be evaluated for the particular business and its owners.
Eligible owners of pass-through businesses may also qualify for the qualified business income (QBI) deduction. The deduction can be affected by taxable income, employee wages, business property, and the type of business.
Certain professional and service businesses face additional limitations. Importantly, a decision to accelerate depreciation or otherwise reduce business income can also reduce the QBI deduction, so these provisions should be considered together rather than in isolation.
Research costs and charitable contributions
Businesses with eligible research or experimental expenditures may be able to deduct qualifying domestic costs under rules expanded by recent legislation.
The treatment for these expenses depends on the nature of the work and other requirements; businesses with substantial development activity should review the rules before filing.
Charitable contributions may also deserve attention, particularly for C corporations, which face specific limits and thresholds on deductible gifts. The timing and amount of a contribution should be considered alongside the business’s overall tax position and charitable objectives.
Review ownership and long-term plans
For some founders and shareholders, qualified small business stock (QSBS) rules may allow a substantial exclusion of gain when qualifying stock is sold.
Recent legislation changed certain eligibility requirements and potential exclusion limits for stock issued after a specified date. The rules are technical and depend on the company, the stock, when it was issued, and how long it is held.
If you are considering a sale, investment, or change in business structure, review its eligibility under these rules well in advance, rather than waiting until the transaction is imminent.
Employing family members may be appropriate when they perform genuine work for the business. Reasonable compensation for actual services can be deductible, and different payroll-tax rules may apply in certain family-business situations.
The arrangement must be real and properly documented, with appropriate payroll and reporting practices; family relationships alone do not determine whether payments are deductible or not.
Make decisions with the whole business in mind
Year-end tax planning works best when it is part of a broader business plan. Review expected profits, cash needs, capital investments, employee benefits, ownership goals, and the likely tax position for both 2026 and 2027.
Please contact us if you would like to discuss which opportunities fit your business and what should be addressed before year-end.