For business owners, year-end tax planning should start well before the final days or even weeks of the year. No matter how big or small your business, you need time to evaluate the potential impact of financial and operational decisions you can still make. Here are some tips to consider for the 2026 tax year.
Manage Taxable Income Carefully
If you operate your business as a sole proprietorship or a single-member limited liability company (LLC) treated as a sole proprietorship for tax purposes, carefully projecting your taxable income as the year winds down is critical. The same holds true if you operate your business as a partnership, S corporation, or LLC treated as a partnership or S corporation for tax purposes.
The reason why is simple: Income generated from these "noncorporate" entities passes through to your personal federal income tax return. So you need to know what you are up against and whether you should take certain steps before year-end.
The good news is last year's One Big Beautiful Bill Act (OBBBA) made permanent the generally favorable tax rates established under the Tax Cuts and Jobs Act of 2017 (TCJA): 0%, 12%, 22%, 24%, 32%, 35%, and 37%. The income ranges applicable to each tax rate are subject to annual inflation adjustments. However, the 2027 adjustments are expected to be relatively modest.
Year-end strategy: If you expect to be in the same or a lower income tax bracket in 2027 than you are in 2026, follow the traditional strategy of deferring taxable income to next year and accelerating deductible expenses to this year. At minimum, this approach will postpone part of your tax liability from 2026 to 2027 by reducing the amount of business income reported on your 2026 return.
On the other hand, if you expect to be in a higher tax bracket next year, take the opposite approach. As feasible, accelerate income into this year and postpone deductible expenditures until 2027. That way, more business income will be taxed at this year's lower rate instead of at next year's higher rate.
Important: If your company is taxed as a C corporation, you will need to look at things a little differently. A C corporation generally pays federal income tax on its taxable income at a flat 21% rate, so your individual tax bracket does not determine the rate on corporate profits. Year-end income and deduction timing may still affect the corporation's tax bill. However, you should also consider cash flow and how retaining or distributing profits may affect you (and other owners) personally, because corporate profits distributed as dividends may be taxed again to shareholders (so-called "double taxation").
Maximize Any Eligible 199A QBI Deduction
For sole proprietors and pass-through entity owners, the Section 199A qualified business income (QBI) deduction is a valuable opportunity to focus on at year-end. Originally introduced under the TCJA, this write-off was made permanent under the OBBBA. It offers eligible taxpayers a deduction generally equal to 20% of QBI (not to exceed 20% of taxable income).
The OBBBA also added a $400 minimum 199A deduction for eligible taxpayers with at least $1,000 of QBI, effective for tax years beginning after December 31, 2025. This deduction will be adjusted annually for inflation after 2026.
QBI is generally defined as the net amount of qualified items of income, gain, deduction, and loss that are effectively connected with the conduct of a U.S. business. Above specified taxable income levels, the 199A deduction for income from an eligible business can not exceed the greater of:
50% of the amount of W-2 wages paid to employees by the qualified business during the tax year, or
The sum of 25% of W-2 wages plus 2.5% of the cost (not reduced by depreciation taken) of qualified property.
For 2026, these limitations generally apply when taxable income (calculated before any 199A deduction) exceeds $201,750 ($403,500 for married couples filing jointly). For 2026, these limitations are fully phased in once taxable income exceeds $276,750 ($553,500 for joint filers).
Important: Starting in 2026, the OBBBA expanded the income ranges over which the 199A deduction limits phase in from $50,000 to $75,000 for most filers (from $100,000 to $150,000 for joint filers). This change may allow some taxpayers to claim larger deductions than in previous years.
In addition, a taxpayer's allowable 199A deduction can not exceed 20% of the individual's taxable income, calculated before any 199A deduction and reduced by any net capital gain amount (defined as net long-term capital gains in excess of net short-term capital losses plus qualified dividends).
Special rules can reduce or eliminate the deduction for income from a specified service trade or business (SSTB), depending on taxable income. SSTBs include certain fields, such as health, law, accounting, consulting, and financial services. (Engineering and architecture are excluded.) Your tax advisor can help determine whether these rules apply to your business.
Year-end strategy: The 199A deduction makes it even more important to carefully project and manage your taxable income as year-end approaches. You may have time to make, or not make, moves to potentially increase your allowable write-off. For example, you could harvest capital losses to reduce your taxable income or postpone Roth IRA conversions that would increase it.
Claim First-Year Depreciation Deductions
For both noncorporate business owners and corporations, first-year depreciation write-offs can provide considerable tax savings under the right circumstances. If you are planning to buy equipment, laptops, vehicles, or other qualifying assets before year-end, consider the following two tax breaks:
1. The 100% bonus depreciation deduction. The OBBBA made this tax break permanent for eligible new and used assets acquired after January 19, 2025, and placed in service in 2025 or later. Under first-year bonus depreciation, you can buy qualified assets, generally defined as new and used tangible property with a recovery period of 20 years or less, and immediately deduct the full cost. Common examples include office furniture and equipment, as well as off-the-shelf computer software. Qualified improvement property is also eligible. (Ask your tax advisor for details if you have upgraded an interior portion of a nonresidential building that is already in use.) There is no limit on how much first-year bonus depreciation you may claim.
2. The Sec. 179 expensing election. This break also allows you to immediately deduct, rather than depreciate over a number of years, the full cost of eligible new and used assets bought and placed in service this year. However, for 2026, you can deduct only up to $2.56 million of qualifying asset purchases. And the tax break begins to phase out dollar for dollar when the cost of qualifying property placed in service during the year exceeds $4.09 million.
Year-end strategy: You do not have to choose one of these breaks over the other. Many businesses first elect a Sec. 179 deduction on selected assets and then apply first-year bonus depreciation to remaining qualifying property. But, in some cases, it may make more sense to follow normal depreciation schedules that spread deductions over multiple years.
The right approach depends on your circumstances. For example, claiming substantial first-year depreciation deductions could inadvertently reduce the aforementioned 199A QBI deduction for noncorporate business owners, or it could trigger the excess business loss rule that was made permanent under the OBBBA. Your tax advisor can help you choose the right depreciation approach, but it is important to start planning well before the end of the year.
Plan for QPP Projects Mindfully
Investments in qualified production property (QPP) may also provide significant depreciation-related tax breaks for eligible businesses. QPP generally refers to nonresidential real estate (a factory, for instance) that's used as an integral part of a "qualified production activity" such as the manufacturing, production, or refining of tangible personal property.
QPP doesn't include any part of nonresidential real property that is used for offices, administrative services, sales, lodging, parking, research, engineering, software development, or other functions unrelated to the manufacturing, production, or refining of tangible personal property.
The OBBBA allows 100% first-year depreciation for QPP. However, it applies only to eligible construction projects that begin after January 19, 2025, and before January 1, 2029. To qualify, the QPP must be placed in service in the United States or a U.S. possession, generally before 2031.
Year-end strategy: If your business is planning to build a new factory, processing facility, or other qualifying structure, review your project timeline before year-end. Even if construction might not be completed for several years, establishing that construction began within the eligible window could allow you to write off the entire cost of the QPP in the year it is placed in service, rather than depreciating it over decades. So, if feasible, you may want to accelerate a project's start date to claim this tax break.
Consider the Possibilities
Year-end tax planning works best when you consider every possible savings opportunity alongside your business's cash flow needs and strategic plans. After all, the complex rules under the federal tax code can often interact in unexpected and potentially unfavorable ways. Our tax team can help you navigate your options and develop a year-end tax strategy tailored to your business.
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Our firm provides the information in this article for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisors. Before making any decision or taking any action, you should consult a professional advisor who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this blog are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided “as is,” with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.