Year End Tax Planning: Strategies to Consider Before December 31

Every year, I see business owners make the same mistake. They wait until tax season to figure out how much they owe instead of spending time before December 31 figuring out how much they can legally save.

There is a significant difference between tax preparation and tax planning. Tax preparation is reporting what happened last year. Tax planning is making decisions today that can change what you owe tomorrow.

And here’s the problem. Once December 31 passes, many of the best tax planning opportunities are gone.

Whether you operate an LLC, an S Corporation, own rental properties, or have multiple sources of income, the final months of the year are an important opportunity to review your financial picture and make the right moves before the books close.

Review Your Business Structure Before Another Tax Year Passes

One of the first things I look at when reviewing a business owner’s tax situation is how their business is structured.

Are you operating as a sole proprietor? Do you have an LLC but haven’t considered an S Corporation election? Are you paying yourself correctly? Do you have multiple businesses operating under an entity structure that no longer makes sense?

These questions matter because your legal entity and your tax classification are two different things.

An LLC can provide important liability protection under state law, but forming an LLC by itself does not automatically create tax savings. Depending on the owner’s situation, an LLC might be taxed as a sole proprietorship, partnership, or corporation.

For profitable businesses, an S Corporation election can provide an opportunity to reduce certain employment taxes when properly structured. However, an S Corporation owner who works in the business must receive reasonable compensation for services performed before taking distributions.

The strategy is not simply to form another entity. It’s to determine whether your current structure makes sense for your income, operations, and plans for the future.

In some situations, changing the structure before the new year may be appropriate. In others, the better strategy is to prepare now for an election that will take effect in 2027.

Take a Serious Look at Retirement Contributions

Retirement planning is one of my favorite areas of tax strategy because it gives business owners an opportunity to potentially reduce current taxes while building long term wealth.

If you’re self employed or own a business without eligible employees other than yourself and potentially your spouse, a Solo 401(k) may be worth considering.

For 2026, the basic employee contribution limit for a 401(k) is $24,500. Depending on compensation, age, and other applicable rules, the business may also be able to make employer contributions. The total annual additions limit is generally $72,000 before eligible catch up contributions.

Think about what that means. Instead of simply writing a larger check to the IRS, you may be able to direct more of your income into a retirement account for your future.

But don’t assume every contribution can be made at the last minute. The deadlines for establishing a retirement plan, making employee elections, and funding contributions depend on the type of plan and business.

Certain eligible sole proprietors have additional flexibility under federal law. S Corporation owners and other employers have different rules to consider.

The important point is to review your options now rather than assume you can figure everything out in April. For a closer look at the limits, qualification rules, and funding deadlines, see Solo 401(k) Year-End Planning.

Evaluate Equipment Purchases and Business Deductions

Another area to review is whether your business needs to purchase equipment, technology, vehicles, or other assets before the end of the year.

Under current federal tax law, qualifying business property acquired after January 19, 2025, may be eligible for 100 percent bonus depreciation, subject to the applicable requirements.

Section 179 also allows eligible businesses to expense certain qualifying property. For 2026, the maximum Section 179 deduction is $2,560,000, subject to investment limitations, taxable income rules, and other restrictions.

These provisions can create substantial deductions when used correctly.

However, I want to be clear about something. Never spend money just to get a tax deduction.

If your business needs equipment, you have the cash flow, and the purchase makes financial sense, there may be a valuable tax strategy available.

If you are spending $50,000 on something you don’t need simply because someone told you it was deductible, that’s not necessarily good tax planning.

The asset must qualify, and generally it must be placed in service during the applicable tax year. Ordering equipment in December does not automatically mean it qualifies for a 2026 deduction.

Review Your Income, Expenses, and Estimated Taxes

By November, every business owner should have a reasonable idea of what their income and expenses will look like for the year.

If you don’t know approximately how much profit your business has made, you have a bigger issue than your tax bill.

Clean bookkeeping is the foundation of proper tax planning.

For taxpayers using the cash method of accounting, the timing of income received and qualifying expenses paid can affect taxable income. In some circumstances, accelerating legitimate expenses or deferring income may make sense.

But these decisions must follow the applicable accounting rules. A taxpayer cannot simply move income or deductions into whichever year produces the lowest tax bill without considering the law.

Business owners should also review estimated tax payments, payroll withholding, shareholder compensation, and distributions before the end of the year.

A profitable year can be great for your business. An unexpected tax liability because nobody reviewed the numbers is a problem that can often be avoided.

Don’t Forget the Bigger Picture: Your Trifecta

Tax planning should not happen in isolation.

This is why I regularly teach the Trifecta strategy. Your business operations, investment assets, and estate plan should work together as part of an overall tax and legal structure.

For example, your operating business may benefit from an S Corporation election, while your rental real estate may be better suited for a different ownership structure. Your estate plan may need to coordinate with both, while your retirement accounts require proper beneficiary planning.

The answer is rarely to put everything into one LLC or create as many entities as possible.

The answer is to use the right structure for the right purpose.

As your income, investments, and family circumstances change, your Trifecta may need to change as well.

There Is Still Time to Make a Difference

December 31 is an important deadline, but it’s not the deadline for every tax strategy. Some retirement contributions, entity elections, and other planning decisions may have later deadlines or specific exceptions. For a full calendar of what falls due and when, see Important Year End Tax Deadlines Every Business Owner Should Know.

The problem is assuming that every strategy can wait until your tax return is due.

If you’re having your first meaningful tax conversation in March or April, you may already have missed opportunities that required action during the prior year.

At KKOS Lawyers, our attorneys work with business owners, entrepreneurs, and real estate investors to review their tax and entity structures, identify planning opportunities, and establish strategies that can be implemented properly.

Don’t just prepare your 2026 tax return. Review the decisions that could affect what you owe.

Schedule a Comprehensive Tax and Business Consultation with KKOS Lawyers and get your tax and legal strategy reviewed before the year ends.

This article provides general educational information and does not constitute legal or tax advice. Tax strategies and deadlines depend on individual facts, entity classification, and applicable federal and state law.