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October to December, tax year 2026

Year End Tax Planning for Small Business Owners
The Last Quarter Decides the Year

Year end tax planning for small business owners is the work done between October and December 31, while the numbers can still be changed. Retirement plan adoption, equipment placed in service, S corp payroll adjustments, charitable gifts, income timing, and the January estimated payment all have deadlines that pass before the return is ever prepared. This page is the 2026 version: what to do, in what order, with current limits and sources.

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Written by Bryan Martin, CPA, Managing Partner and Founder of Taxstra. Last updated September 1, 2026.

Why the Last Quarter Decides the Year

October is when a projection becomes a plan

By October 1 you have nine months of real numbers. That is enough to project the year within a few percent, which is enough to know whether this is a year to accelerate deductions or defer them, whether the S corp salary needs a December adjustment, and whether the estimated payments are on track. After December 31, every one of those questions is settled, and the return only reports the answer.

Key Insight
The October reality: Q4 is the busiest quarter for most owners, which is exactly why planning slips. The businesses that come out ahead are the ones that block two hours in early October to run the projection and make the decisions, then let the calendar do the rest.

Each month narrows the menu. In October, everything on this page is available. By November, retirement plan design and equipment delivery are tight. By mid-December, the remaining options are payroll adjustments, charitable gifts, prepaid expenses, and invoice timing.

Watch Out
The December 31 trap: Equipment has to be delivered and in use, not ordered, by December 31. Employee 401(k) deferrals have to run through payroll by December 31. Charitable gifts have to clear by December 31. An S corp election for 2027 is filed in early 2027, but the decision, and the payroll setup behind it, belongs in this quarter. None of this can be done retroactively on January 5.
Taxstra Tip
The owners who get the most from year end tax planning contact us in September or October. There is time to model scenarios, order equipment, coordinate with the financial advisor, and execute deliberately instead of guessing on December 28.
Key Insight
What the October session covers: a projection from nine months of actuals, the projected taxable income and marginal rate, the estimated payments made so far against the safe harbor, and a dated list of every move that fits the numbers, with the December deadline for each one. The broader menu of strategies is on our small business tax planning guide.

Income Acceleration vs. Deferral

Same dollars, different year, different rate

In a low-income year, pull income into December (send invoices, collect deposits, finish and bill projects) so it is taxed at this year's lower rate. In a high-income year with a lower year expected next, hold December invoices until early January. Both are legitimate for a cash-basis business as long as you are not refusing money that is already available to you.

Acceleration

When to use it: a low-income year, a loss year, or a year before an S corp election or a spouse's return to work pushes you into a higher bracket.

Tactics:

  • Invoice and collect in December
  • Pay owner bonuses in December
  • Finish projects and bill before December 31
  • Hold discretionary spending until January

Deferral

When to use it: a high-income year with a lower one expected next year.

Tactics:

  • Send December invoices in early January
  • Defer the owner bonus to January
  • Prepay January expenses in December (12-month rule)
  • Fund every available retirement contribution
Watch Out
The cash method rule: Income is taxed when received, not when earned. A client payment received in December 2026 is 2026 income even if the work runs into 2027. An invoice sent in January 2027 for December work is 2027 income. Constructive receipt is the limit: if the check is on your desk in December, it is December income whether or not you deposit it.
Taxstra Tip
Timing works best when income and expenses move together. In a low year, accelerate income and hold expenses. In a high year, defer income and accelerate expenses. Moving only one side gives up half the effect.

Retirement Contributions Before Year End

The largest deduction with the most deadline confusion

Retirement contributions are the biggest deduction most owners control, and they are the one that leaves you wealthier. The catch is that different pieces have different deadlines, and the ones that fall on December 31 are the ones that need payroll.

Key Insight
The 2026 numbers: the 401(k) employee deferral limit is $24,500, the catch-up is $8,000 at age 50 and older ($11,250 at ages 60 to 63 where the plan allows it), and total contributions to a 401(k) can reach $72,000 before catch-ups. A defined benefit or cash balance plan can fund toward an annual benefit of up to $290,000, which often translates to six-figure deductible contributions for owners in their fifties.

Illustrative Example: Solo 401(k) on an S Corp W-2

An owner, age 52, pays herself $120,000 of W-2 wages. She defers $24,500 plus the $8,000 catch-up through December payroll, and the S corp contributes 25% of wages, $30,000, by its extended return due date. Total: $62,500 sheltered. At a 24% federal bracket that is roughly $15,000 of federal tax deferred. Assumptions: owner-only plan adopted before year end, no employees, state tax ignored.

Retirement Plan Deadlines for 2026 Contributions

401(k) employee deferral, S corp ownerThrough payroll by December 31, 2026
401(k) employee deferral, sole proprietorElection by December 31, 2026 for an existing plan; a new first-year plan has until the unextended filing deadline
401(k) employer contributionBusiness return due date, including extensions
SEP-IRAEstablish and fund by the return due date, including extensions
Cash balance / defined benefitCan be adopted up to the return due date, but design and funding need weeks; decide by November
SIMPLE IRA (new plan)Generally must be set up by October 1 of the year; deferrals through payroll by December 31

The practical rule: anything that runs through payroll is a December 31 item, anything the business contributes as employer can wait for the return, and anything with an actuary needs to be decided in the fall. See the current figures on our solo 401(k) contribution limits page and the plan comparison in the small business tax planning guide.

Watch Out
Do not leave a retirement decision for December 30. The contribution has to be calculated against actual compensation, the plan document has to exist, and payroll has to run. Mid-December is a reasonable internal deadline for the decision; the funding can follow the rules above.
Taxstra Tip
If you want to see how the year ends before committing, model the contribution at two or three profit levels in October. When December numbers arrive, the decision is already made and only the amount changes.

Equipment Purchases and Depreciation

Placed in service by December 31, or it is next year's deduction

Two rules let a business deduct the full cost of equipment, vehicles, furniture, and software in the year they are placed in service. Section 179 allows up to $2,560,000 of expensing for 2026 (phasing out once purchases pass $4,090,000) and cannot create a loss. Bonus depreciation is 100% for qualified property acquired after January 19, 2025, and it can create a loss. For most small businesses, bonus does the heavy lifting.

Key Insight
Illustrative example: In October, a consulting S corp projects $250,000 of net profit. The owners identify $60,000 of servers, workstations, and software they planned to buy in the spring anyway. They order in October, take delivery in November, and put it in use. The $60,000 is deducted in 2026, cutting taxable income to $190,000. At a 24% bracket that is about $14,400 of federal tax moved from this year into future years. Assumptions: equipment in use by December 31, no state decoupling, the purchase was already planned.

The Equipment Timeline

Early October:Finalize the list and budget; confirm each item is a real business need
Mid October to early November:Order; get delivery dates in writing
November to mid December:Delivery, installation, and first use, which is what "placed in service" means
Late December:Invoices, delivery confirmations, and (for vehicles) the mileage log on file
January to March:The return is prepared with the Section 179 election or bonus depreciation applied
Watch Out
Ordered or paid for does not count. The asset has to be delivered and ready for use by December 31. A truck that arrives January 3 is a 2027 deduction. Vehicles over 6,000 pounds GVWR escape the passenger auto caps but still need more than 50% business use and a log; see vehicles over 6,000 pounds.
Taxstra Tip
Depreciation is a timing benefit. Deducting a $60,000 purchase this year means no deduction for it in years two through five. Buy what the business needs, then choose the fastest write-off that fits the projection. Never the other way around.

Charitable Giving and Bunching

Concentrate deductions into the year they are worth the most

Charitable deductions only help if you itemize, and in 2026 itemized charitable gifts are reduced by a floor equal to 0.5% of adjusted gross income. That makes bunching more valuable, not less: giving several years of donations in one high-income year clears the floor once and pushes the total well past the standard deduction, then you take the standard deduction in the off years.

Key Insight
Illustrative example: A married owner normally gives $10,000 a year and has a high-income 2026. Instead, she funds a donor-advised fund with $30,000 of appreciated stock in December 2026, deducts the fair market value this year (subject to the AGI floor and limits), pays no capital gains tax on the stock, and recommends $10,000 grants from the fund in 2027 and 2028 while taking the standard deduction in those years. Same giving, more deduction in the year it is worth the most.

Charitable Giving Tactics

Donor-advised fund (DAF)

Contribute cash or appreciated securities by December 31, take the deduction this year, recommend grants to charities over time. The standard tool for bunching.

Appreciated stock instead of cash

Donating stock held more than a year gives a deduction at fair market value and avoids the capital gains tax you would owe on a sale. Transfers take days to weeks, so start in November.

Qualified charitable distribution from an IRA

Owners age 70 1/2 or older can send up to $111,000 in 2026 directly from an IRA to charity. It counts toward a required minimum distribution and never shows up in income, which helps even if you do not itemize.

Taxstra Tip
Gifts count in the year they clear, not the year you decide. A stock transfer initiated December 29 that settles January 2 is a 2027 gift. Give the custodian a November deadline.
Watch Out
Documentation is not optional. Keep the contemporaneous written acknowledgment from the charity for any gift of $250 or more, the DAF confirmation, and a qualified appraisal for non-cash gifts above the reporting threshold.

Roth Conversions

Pay tax now at a low rate, never again on the growth

A Roth conversion moves money from a traditional IRA or 401(k) into a Roth account and adds the converted amount to this year's taxable income. It belongs in a year when your rate is unusually low: a loss year, a year off, or the gap between selling a business and taking Social Security. In a high-income year, the answer is usually to wait.

Key Insight
Illustrative example: An owner's business shows a loss in 2026 after a large equipment write-off, leaving the household with $60,000 of taxable income and room in the 12% bracket. Converting $40,000 in December costs roughly $4,800 of federal tax at 12%. The same conversion in a normal year at 32% would cost $12,800. The $40,000 then grows tax-free with no required distributions. Assumptions: married filing jointly, 2026 brackets, state tax ignored.
Watch Out
Conversions are irrevocable; recharacterization of a conversion has not been allowed since 2018. The converted amount raises adjusted gross income, which can affect the QBI deduction, the premium tax credit, and Medicare IRMAA surcharges two years later. Model the whole return, not just the bracket.
Taxstra Tip
Run the conversion decision from a multi-year projection. If 2026 is low and 2027 will be high, convert now up to the top of the current bracket. If income will stay high, a partial conversion each year in retirement is usually the better plan.

Year end tax planning for small business owners: the October to December checklist

What to do each month, and which items cannot slip

This is the operating checklist for the last quarter of the year. Items marked with an exclamation point have a hard December 31 deadline or need lead time that runs out if they slip a month. A printable version is on our year end tax planning checklist page.

OCTOBERabout 13 weeks to December 31

!
Run a projection using nine months of actuals plus a Q4 estimate
!
Compare estimated payments made to the safe harbor (100% or 110% of last year's tax)
!
List equipment and vehicles the business needs; get delivery dates in writing
!
Check retirement plan room: deferral, employer piece, catch-up, cash balance layer
o
Confirm state PTET election status and remaining payment dates
o
Review S corp salary against the projection and plan a December adjustment
!
Decide whether an S corp election for next year makes sense

NOVEMBERabout 9 weeks to December 31

!
Lock the projection; estimate the final tax bill both with and without planned moves
!
Order equipment so it is delivered and in use before December 31
!
Adopt any new retirement plan; sign the cash balance plan document if adding one
o
Fund donor-advised fund or appreciated stock gifts (transfers take time)
o
Decide on a Roth conversion amount if this is a low-income year
o
Schedule remaining Augusta rule meetings and keep the minutes
!
Set the December payroll: bonus, health premiums in Box 1, extra withholding

DECEMBERthe last 4 weeks

!
Equipment must be delivered and placed in service by December 31
!
Employee 401(k) deferrals must run through payroll by December 31
!
Charitable gifts must be completed and receipted by December 31
o
Prepay January expenses that qualify under the 12-month rule
o
Send or hold December invoices based on the income-timing decision
!
Confirm final W-2 payroll, including shareholder health premiums, is processed
!
Calendar the January 15, 2027 estimated payment and gather documents for the return

Critical note: December items marked with an exclamation point cannot be deferred. After December 31 they are gone for the 2026 return.

DeadlineDecember 31, 2026
What it controlsEquipment placed in service, employee 401(k) deferrals through payroll, charitable gifts, income and expense timing
SourceIRS Pub 946; IRS 401(k) limits; Form 1040 Schedule A
DeadlineJanuary 15, 2027
What it controlsFourth-quarter 2026 estimated tax payment
SourceForm 1040-ES (2026)
DeadlineMarch 15, 2027
What it controlsForm 2553 for a calendar-year 2027 S corp election; S corp and partnership returns (or extensions)
SourceForm 2553 instructions
DeadlineReturn due date, including extensions
What it controlsEmployer 401(k) contributions, SEP-IRA funding, cash balance funding
SourceIRS one-participant 401(k) guidance

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Estimated Taxes and the Filing Handoff

From the January 15 payment to the April return

The fourth 2026 estimated payment is due January 15, 2027. You avoid the underpayment penalty if you owe less than $1,000 at filing, or if your payments and withholding reach 90% of this year's tax or 100% of last year's tax (110% if last year's adjusted gross income was over $150,000). In a growth year, paying the prior-year safe harbor on schedule and settling the rest in April is the cheapest option available.

Key Insight
The S corp owner's fix: Withholding on W-2 wages is treated as paid evenly through the year, regardless of when it was actually withheld. An owner who underpaid the first three quarters can run a large December payroll with extra federal withholding and cure the shortfall without quarterly penalties. Estimated payments do not get that treatment.

Filing Timeline for the 2026 Return

January 15, 2027: Fourth-quarter 2026 estimated payment due

End of January 2027: W-2s and 1099-NECs due to recipients

February: Books closed; documents to the CPA

March 15, 2027: S corp and partnership returns (or extensions); Form 2553 for a 2027 election

April 15, 2027: Individual return, or extension with payment

October 15, 2027: Extended individual return

Once the return is filed, the 2026 plan is closed. The handoff that matters is the next one: the 2027 projection, the estimated payment schedule, and the entity and payroll decisions that need to be in place by March. Our quarterly taxes guide for business owners covers the estimate mechanics in detail.

Watch Out
If you executed major moves this year (bonus depreciation, a new plan, a large gift, a Roth conversion), have the documentation ready before the return is prepared: invoices and in-service dates, plan documents and contribution confirmations, charity acknowledgments, and conversion statements.
Taxstra Tip
The best year end tax planning session ends with next year's calendar filled in: estimate dates, the S corp salary review in June, the retirement plan decision in September, and the October projection. That is the whole difference between planning and preparing.

Use the Last Quarter of 2026

Book a free initial consultation. We will project your year from nine months of actuals and hand you a dated list of the moves that fit the numbers.

FAQs

Common questions about year end tax planning for small business owners.

Have another question? Book a free initial consultation
Early October, once nine months of actual numbers exist to project from. That leaves time to adopt a retirement plan, order equipment that must be placed in service by December 31, run a December payroll adjustment for an S corp, and true up the January 15 estimated payment. Owners who start in December can still act on a few items, but retirement plan design, equipment delivery, and state PTET elections usually need more lead time than that.

Authoritative Sources

Citations reflect U.S. federal tax law as of the article's last reviewed date.

December 31 Is a Real Deadline

October to December is the window to change what the 2026 return says. Book a free initial consultation and leave with a dated action plan.

Related Guides and Services

Small Business Tax Planning: 12 StrategiesSmall Business Tax Planning ServiceQuarterly Taxes for Business OwnersYear End Tax Planning ChecklistSmall Business Tax AdvisorSolo 401(k) Contribution Limits 2026Roth Conversion PlanningBunching DeductionsBonus Depreciation and Section 179

Turn year-end planning into assigned decisions

Start with current books, year-to-date payroll, prior returns, estimated payments, and expected remaining income. A list of deductions is not a plan until eligibility, cash, timing, and implementation are addressed.

Decision Information to collect Responsible handoff
Owner compensation Duties, year-to-date wages and expected work Tax adviser and payroll
Retirement funding Plans, contributions, employees and cash Adviser and plan administrator
Equipment Business need, cost and service date Operations and accountant
Estimated tax Whole-household projection and prior payments Tax adviser and owner
Entity/state elections Ownership, locations and deadlines Adviser and filing team

An illustrative $40,000 equipment purchase uses $40,000 of cash before financing, regardless of its possible deduction. Compare the business value, tax timing, and liquidity. Do not spend solely because an expense may be deductible.

Keep a decision log with alternatives, assumptions, action, deadline, and completion evidence. Review which steps must occur during the year and which have later filing or funding deadlines. Use current primary instructions for each item rather than assuming every strategy shares December 31 as its cutoff.

Sources: IRS Publication 946, Publication 560, and recordkeeping guidance.

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Educational, not individualized tax advice. Examples are hypothetical. Content updated September 5, 2026; confirm the rules applicable to your year and circumstances.

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