What Business Owners Need to Do Before December 31

Most of the tax planning that will count for 2026 has to happen before December 31. After that date, the work changes. We stop planning and start reporting what already happened.

That is why the fourth quarter matters. The books are far enough along to show what the year really looks like, and there is still time to act on it. Here is where we would focus if you own a business.

Start with books you can trust

Every useful planning conversation starts with clean books. If your bank and credit card accounts are reconciled through September or October, we can project the full year with confidence. If they are not, the projection is a guess. Catching up on reconciliations and clearing uncategorized transactions is the first step, because every decision below depends on it.

Equipment counts when it is placed in service

Federal law now allows a full deduction in the first year for most equipment acquired and placed in service after January 19, 2025. This 100 percent bonus depreciation is permanent. Section 179 expensing is also available, with a limit of $2,560,000 for 2026.

The catch is timing. The deduction follows the date an asset is placed in service, not the date you paid for it. A truck still on order or a machine still in its crate on December 31 does not help your 2026 return. Financing does not change the rule. An asset bought with a loan can still qualify once it is placed in service.

California does not follow either federal rule. It allows no bonus depreciation, and its Section 179 limit is $25,000. A purchase that wipes out your federal taxable income can still leave you with a California bill. That is why we keep a separate California depreciation schedule for our clients.

One caution. A deduction is not a reason to buy something you do not need. Spending a dollar to save part of a dollar in tax is still spending the dollar.

Owner pay, payroll, and contractors

If you own an S corporation, your salary should be reasonable for the work you do. It also has to run through payroll by December 31 to count for 2026. Health insurance premiums the company pays for owners who hold more than 2 percent of the stock also belong on the owner's W-2. Both are easier to fix in December than in January.

The 2026 Form W-2 also adds new reporting for qualified overtime pay and tips. If you have hourly or tipped employees, your payroll records need to separate those amounts before the forms are prepared.

Contractors have a change too. For most payments made in 2026, the reporting threshold for Forms 1099-NEC and 1099-MISC is now $2,000 instead of $600. Collect a Form W-9 from every contractor now, before the February 1, 2027 filing deadline makes it urgent.

Retirement plans have different deadlines

Some retirement plans have to be in place before December 31 to accept contributions for this year. Others can be opened after year end. If you want to put more away for 2026, decide which plan fits your business while there is still time to set it up.

Estimated payments and withholding

The last federal estimated payment for 2026 is due January 15, 2027. California's last 2026 payment is due the same day. Compare what you have paid so far with what the year is likely to produce.

If you own an S corporation and you are behind, your December paycheck can help. For federal purposes, tax withheld from wages is treated as paid evenly through the year. Extra withholding in December can cover a shortfall from earlier quarters in a way that a January estimated payment cannot.

Charitable gifts under the new rules

The charitable deduction rules changed for 2026, both for people who itemize and for people who do not. If you give regularly, it is worth deciding whether to give this year or to group two years of gifts into one. Giving appreciated stock instead of cash can also help. The right answer depends on whether you itemize, so it belongs in the same conversation as everything else here.

California owners and the PTE election

California's elective pass-through entity tax lets S corporations and partnerships pay state income tax at the entity level. That can turn a capped personal deduction into a business deduction on the federal return. The election is now available through 2030.

Two details matter for 2026. First, missing or shorting the June 15 payment no longer ends the election. The credit is reduced, but the business can still elect on a timely filed return. Second, the timing of the remaining payment can decide which year's federal return gets the deduction. For many businesses, paying before December 31 puts it on the 2026 return.

The federal cap on state and local tax deductions went up, but it shrinks back for higher incomes. Whether the election helps depends on your income, your entity, and your owners, so we run the numbers both ways.

What to bring to a planning meeting

Bring your profit and loss statement and balance sheet through the most recent month, with reconciliations done. Bring a payroll summary for the year and a record of estimated payments made so far. List any equipment or vehicles you bought or plan to buy, with the dates they went into service. Last year's return helps us see the pattern. Most important, tell us what changed this year: a new partner, a large contract, a move, new hires, or a planned sale.

Book your planning call

If you want to walk through your numbers before the window closes, book a time with our team at calendly.com/kirkcole/15-minute-meeting. We work with hundreds of clients, and the ones who plan in the fourth quarter tend to have fewer surprises in April.

This article is general information, not tax advice for your situation. Tax rules change, and the right move depends on your facts.