By Adam Morris, CPA • October 21, 2025

Year-End Tax Planning Checklist

Year-end tax planning is a decision sprint. The goal isn't to find secret deductions—it's to get current numbers, update a projection, and execute the decisions that would otherwise be made without the tax context. Most of the high-leverage options close when December 31 passes. This checklist organizes the decisions so nothing is missed under deadline pressure.

Year-end planning is the last phase of a quarterly rhythm. Build the foundation with Tax Planning Strategies for Small Businesses and start earlier next year using the Q3 planning window described there.

Step 1: Get the books current

Year-end planning without current numbers is guesswork. Before doing any planning, confirm:

• Books are closed through at least October; November close is better
• Year-to-date P&L shows revenue, gross margin, and operating expenses through the most recent closed month
• Balance sheet is reconciled and reflects current cash, receivables, and liabilities
• Payroll YTD summary is current, especially if owner compensation decisions are on the table

Stale numbers produce plans that don't match reality. If your books are behind, treat cleanup as the first item on the checklist. See Monthly Bookkeeping Checklist for the close process.

Step 2: Build a full-year projection

With YTD actuals in hand, extend the projection through December 31:

• Revenue forecast for remaining months: based on backlog, open contracts, or a conservative continuation of recent months; note whether any large projects are likely to invoice before or after year-end
• Known upcoming expenses: any major vendor payments, equipment purchases, payroll changes, or year-end bonuses that will affect the remaining months
• One-time items: a large asset sale, an insurance payout, a write-off of uncollectible receivables—any event that significantly affects taxable income and doesn't repeat

The projection produces an estimated taxable income range. Planning then identifies which actions can reduce that estimate, shift timing, or manage cash flow before the year closes. Two scenarios are often worth modeling: a base case and a conservative case if revenue comes in lower than expected.

Step 3: Review owner compensation and distributions

How owners are paid is often the highest-leverage year-end decision, and it varies by entity type:

• S-corporation shareholders: confirm that reasonable W-2 compensation has been paid to owner-employees throughout the year; the last payroll of December is the final opportunity to adjust; distributions taken without adequate salary create significant audit risk; the split between wages and distributions affects both FICA and the QBI deduction calculation
• Sole proprietors and single-member LLCs: all net profit is self-employment income; year-end decisions involve estimating the final net profit to confirm estimated tax payments are adequate; if this year's income is significantly higher than prior years, an S-election is often worth modeling for the following year
• Partnerships and multi-member LLCs: guaranteed payments are ordinary income to the partner; distributive shares affect each partner's estimated tax; coordinate year-end distributions with projected K-1 allocations so partners aren't surprised by a tax bill in April

Step 4: Execute retirement plan decisions

Retirement plan contributions reduce current-year taxable income and build long-term wealth. The key year-end deadlines:

• Solo 401(k): the plan must be established by December 31 of the year for which you want to make contributions; employee elective deferrals must also be made before year-end; employer profit-sharing contributions can be funded up to the tax return due date including extensions
• SIMPLE IRA: must be established by October 1 to be effective for the current year; if you missed that deadline, plan ahead for next year; contributions can continue through year-end
• SEP-IRA: unlike the Solo 401(k), a SEP-IRA can be established and funded up to the tax return due date including extensions—typically October 15 for calendar-year taxpayers who extend; this is the most flexible year-end planning tool for businesses that don't yet have a plan
• Existing defined benefit plans: confirm the actuarially determined contribution is being funded; maximum contributions are much higher than 401(k) limits for high-income owners, but these plans require advance setup and ongoing administration

If you don't have a retirement plan and are projecting significant income this year, a SEP-IRA or Solo 401(k) can produce a meaningful reduction in taxable income. These decisions are worth modeling with specific numbers before December 31.

Step 5: Time major purchases and expenses

Business decisions should be driven by business needs, but the timing of purchases you're already planning can affect which year they reduce taxable income:

• Section 179 expensing: allows full deduction of qualifying equipment, machinery, and business property in the year of purchase rather than depreciating over time; useful when you were already planning a purchase and current-year income is high enough to benefit from the deduction; confirm current-year limits and phase-out thresholds with your CPA
• Bonus depreciation: applies to qualifying property and has phased down significantly in recent years; confirm the current-year percentage before making timing decisions based on bonus depreciation availability
• Prepaying business expenses: cash-basis businesses can deduct expenses paid before year-end; insurance premiums, professional subscriptions, and certain service fees paid in December are deductible in the current year even if they cover the following year (with some limitations on prepaid items extending more than 12 months)
• Deferring year-end invoicing: for cash-basis businesses, delaying a year-end invoice for work not yet completed shifts that income to the following year; this only works for work genuinely not yet earned or invoiced; deferring an invoice for completed work is not a legitimate strategy

Document the business purpose and timing of all year-end purchases. See Documenting and Substantiating Business Deductions for the substantiation requirements that protect these deductions if the return is reviewed.

Step 6: Confirm estimated tax payments are on track

The Q4 estimated payment covers income earned September 1 through December 31 and is due January 15. Before that payment is made, confirm:

• Total estimated payments made for the year (Q1 through Q3) and any additional amounts needed to meet the safe harbor
• Whether the prior-year safe harbor (100% of prior year's tax, or 110% if prior year AGI exceeded $150,000) is adequate for this year's income—if income is significantly higher, the safe harbor may still leave a balance due in April
• Whether any additional Q4 payment is warranted based on the updated projection; the goal isn't to eliminate the April balance due entirely—it's to avoid the underpayment penalty while managing cash timing
• State estimated tax requirements; most states have their own estimated payment schedules and safe harbor rules that may differ from federal

Step 7: Address documentation and records before year-end

Year-end is a natural point to bring documentation current before the records are needed for tax preparation:

• Reconcile the mileage log for business vehicle use; log should show date, destination, business purpose, and miles for each trip
• Confirm that receipts or records exist for all significant business expenses; any category where receipts are missing should be reconstructed from bank and credit card statements now, not in April
• Document business purpose for any entertainment, travel, or meal expenses—who was present, what business was discussed; the IRS requires contemporaneous records
• If you have a home office, confirm that the space used exclusively and regularly for business is measured and documented

Step 8: Review entity structure for next year

Year-end is not the time to change entity structure—those decisions take time to implement properly—but it is the time to identify whether a change makes sense for the coming year and begin the process:

• S-corporation elections must generally be filed within 75 days of the start of the year for which you want the election; to be effective January 1, Form 2553 must typically be filed by March 15 of that year
• If you're a sole proprietor with significant net profit, model the self-employment tax comparison between your current structure and an S-corporation for the coming year
• Entity decisions have consequences for compensation structure, retirement plan options, and fringe benefits—evaluate them together, not in isolation

See Choosing the Right Entity Structure for Your Business for the full evaluation framework.

Common mistakes

• Planning without updated books: decisions made on stale numbers produce plans that don't match reality; current financial statements are the first step of year-end planning, not strategy
• Treating year-end planning as "spending for deductions": a dollar of spending produces at most a fraction of a dollar in tax savings; spending money you don't need to save tax is always a net negative; the correct question is: given what we're already planning to do, does the timing or structure benefit from optimization?
• Making retirement plan decisions without modeling: the right retirement vehicle depends on income level, entity type, and cash availability; the decision is specific to facts, not a generic year-end recommendation
• Ignoring state taxes in the year-end analysis: state income taxes, especially for multi-state businesses or owners living in high-tax states, are a material part of the overall tax picture; federal-only planning can produce surprises when the combined bill arrives

When to get help

If you have not reviewed your year-end position with a CPA by early December, schedule the conversation now—even a single planning meeting in November or December can identify decisions that make a material difference. The window for most high-leverage moves closes December 31. For the preparation framework that makes these meetings productive, see How to Use Your Strategy Session.

FAQs

• When is the latest I can make meaningful year-end planning decisions? December 31 for most—retirement plan establishment (Solo 401k), timing of expenses, owner salary adjustments, and income deferral all close when the year closes. A SEP-IRA is the exception: it can be established and funded through the return due date including extensions, typically October 15 of the following year.
• What if my books are behind going into December? Start with cleanup. Estimates built on three-month-old numbers are unreliable, and year-end planning built on unreliable estimates produces recommendations you can't trust. The planning conversation can happen with November actuals if December isn't closed yet—just acknowledge the uncertainty in the projection.
• How do I know if year-end planning is worth it? If your projected taxable income is materially different from last year, if you're making any major decisions before year-end, or if you've consistently been surprised by your April tax bill, the planning conversation will pay for itself. The cost of the conversation is low; the cost of a missed decision is often not.
• Can I change my mind on decisions after January 1? A few—SEP-IRA funding and some retirement plan contributions can be handled when you file. Most others—owner salary, Solo 401k establishment, income timing, equipment purchases—cannot be changed after December 31 without significant complications or penalties.
• What's the biggest year-end mistake? Making decisions without seeing the cash impact. A year-end equipment purchase to "save on taxes" can leave the business cash-squeezed in January. Year-end decisions that optimize for taxes without modeling the cash flow impact solve one problem and create another—see Why Cash Flow Surprises Are a Planning Problem for the cash context to pair with every tax decision.