Why Business Owners Should Book a Year-End Tax Review Before December 31
Most of the choices that shape a business owner's 2026 tax return close on December 31. Here is what a year-end advisory session covers, with the Code sections behind each item, and how to book one.
By the time you send us your documents in February, your 2026 tax return is mostly written. The income was earned, the payroll was run, the equipment was bought or not, and the estimated payments were made or missed. Preparing the return records those decisions. It rarely changes them.
That is why we meet with business owners between October and December. A year-end advisory session looks at your business and your personal return together while there is still time to act on what we find. Below is what we cover and why each item has a December 31 edge.
1. Owner pay in an S corporation
If you own an S corporation and work in it, the IRS expects you to take reasonable wages through payroll before taking distributions (see the IRS guidance on S corporation compensation). Wages for 2026 have to be paid in 2026. Once the year closes, the only way to fix a year with no owner salary is the hard way.
The same deadline applies to health insurance for a more-than-2% shareholder. The premiums are added to the shareholder’s W-2 wages so the shareholder can take the self-employed health insurance deduction under IRC 162(l), and that has to happen in the payroll for the year (Notice 2008-1).
At the review we compare your salary to your profit and your role, check that insurance is flowing through payroll, and set up the final payroll run if something needs to change.
2. Estimated payments and the safe harbor
The underpayment penalty under IRC 6654 does not depend on what you end up owing. It depends on whether you paid enough, on time. You are generally protected if your payments and withholding cover the smaller of 90% of this year’s tax or 100% of last year’s tax, rising to 110% of last year’s tax when last year’s adjusted gross income was over $150,000 (IRC 6654(d)(1)).
A strong year in the business can leave you short without warning. At the review we project your 2026 tax, compare it with what you have paid, and set the fourth quarter payment due Friday, January 15, 2027. If you are an S corporation owner, we may suggest extra withholding from your final paycheck instead, because withholding is treated as paid evenly through the year (IRC 6654(g)).
3. Equipment, vehicles, and the placed-in-service rule
Depreciation starts when an asset is placed in service, not when it is ordered or paid for. The One Big Beautiful Bill Act made 100% bonus depreciation permanent under IRC 168(k) for qualifying property acquired after January 19, 2025, and raised the section 179 expensing limit. For a purchase to count on your 2026 return, it generally has to be in service by December 31, 2026.
A deduction is never a reason to buy something you do not need. But if a truck, a machine, or computers are already planned, the review is where we look at whether timing the purchase before or after year end makes more sense for your business and your personal bracket, and whether bonus depreciation, section 179, or regular depreciation fits best. Indiana and Kentucky do not follow every federal depreciation rule, so we check the state effect too.
4. Retirement contributions
Retirement plans are often the largest planning lever for an owner, and the deadlines differ by plan type. Some contributions must be elected or made by December 31: for example, your own 401(k) salary deferrals have to come out of pay by year end. Others can wait. IRA contributions for 2026 can be made until April 15, 2027 (no extension), and SEP contributions can be made up to the business return’s due date, including extensions. A plan that does not exist yet may still be opened for 2026 in some cases, but not in others.
We review what you have, what you have already contributed, and what the business can afford, then coordinate with your financial advisor on the plan itself.
5. Charitable giving under the 2026 rules
Three charitable changes apply for the first time on 2026 returns: a 0.5% of AGI floor on itemized charitable deductions, a new deduction of up to $1,000 ($2,000 joint) for people who do not itemize, and a 1% of taxable income floor for C corporations. Whether to give this year, bunch gifts into one year, or give through a donor-advised fund now depends on your numbers. Our post on the four OBBBA provisions new for 2026 has the details and the Code sections.
6. Whether your entity still fits
The right structure for a business with $40,000 of profit is often wrong at $250,000. If an S corporation election might make sense for 2027, Form 2553 generally has to be filed by Monday, March 15, 2027 to take effect January 1 (IRC 1362(b)). Going the other way, a business that has outgrown its partners or changed its owners may need changes to its agreements before the new year.
The year-end review is where we look at the business you actually have now, not the one you had when you formed it.
7. Timing income and expenses
If your business uses the cash method, when you send invoices and pay bills can move income between 2026 and 2027. That only helps when the two years are taxed differently, for example when 2027 income is expected to be much lower, or when it pushes you over a phase-out. We run both years side by side before recommending anything.
What a year-end review is not
It is not a promise of a smaller tax bill. Some years the right answer is to change nothing. What the review does is replace guesses with numbers while you still have options, and it gives us what we need to prepare a cleaner return in the spring.
What to bring
- A year-to-date profit and loss statement and balance sheet
- Year-to-date payroll reports, including owner wages
- A list of the estimated payments you have made in 2026
- Your 2025 business and personal returns, if we did not prepare them
- Any planned purchases, sales, or changes in ownership
Book your year-end advisory session
The earlier we meet, the more of these options are still open. Existing clients can book directly, and new clients start with a few short questions so we can set up the right meeting.
Book your year-end advisory session or call us at 812-424-3166.
Note: This post is general information, not advice for your situation. The figures and rules above reflect federal law as of October 2026 and are subject to further IRS guidance.