4 Year-End Tax Planning Strategies for Growing Businesses

Estimated reading time: 10 minutes

A strong revenue year is good news, but higher profits can also create a larger tax bill and tighter cash flow. If your business is on track for significant growth in 2026, year-end tax planning can help you understand the potential liability, evaluate available deductions and avoid surprises when it’s time to file.

The right strategy depends on more than this year’s income. Business owners should also consider expected 2027 results, available cash, planned investments, owner compensation and income reported elsewhere on their individual returns.

The following strategies generally apply to sole proprietors and owners of pass-through entities, including partnerships, S corporations and many limited liability companies. The rules differ for C corporations and may also vary based on the business’s accounting method and industry.

Start with a 2026 year-end tax projection

Before accelerating expenses or purchasing equipment, prepare a year-end tax projection. A projection can show how the business’s recent growth may affect both the company and its owners while there is still time to consider planning opportunities.

A useful projection should account for:

• Year-to-date revenue and deductible expenses
• Expected results through December 31
• Major equipment, vehicle or property purchases
• Owner compensation and distributions
• Retirement plan contributions
• Investment income, capital gains and other income reported by the owner
• Tax credits, loss limitations and carryforwards
• Estimated tax payments already made

A projection should also consider operational changes. Hiring employees, opening another location or conducting business in a new state may create additional income, payroll, sales or franchise tax responsibilities.

This review gives you a baseline for deciding whether to accelerate deductions, defer income, make additional estimated payments or preserve cash for other priorities.

Review your estimated tax payments and cash reserves

If your business income has increased, the estimated tax payments calculated earlier in the year may no longer be sufficient. The fourth estimated payment for the 2026 tax year is generally due January 15, 2027.

Increasing that payment may help reduce an underpayment penalty, but it may not eliminate a penalty caused by earlier underpayments. Special calculation methods may offer relief when a large share of annual income was earned later in the year.

Avoiding a penalty also doesn’t mean that the full tax liability has been paid. You may still owe additional tax when filing your federal or state returns. Your year-end cash-flow plan should account for:

• The January estimated tax payment
• The amount expected to be due with the return
• Year-end payroll and bonuses
• Owner distributions
• Planned equipment or vehicle purchases
• Normal operating expenses and debt payments

Profitable growth doesn’t always produce immediate cash. Accounts receivable, inventory purchases, hiring costs and capital investments can absorb cash even when taxable income is increasing. A tax projection should therefore be coordinated with a cash-flow forecast.

Decide whether to defer or accelerate taxable income

The traditional year-end strategy is to defer taxable income into the following year and accelerate deductible expenses into the current year. This approach may reduce the current-year tax liability, but it isn’t automatically the best choice.

If you expect to be in a higher tax bracket in 2027, accelerating income into 2026 and postponing deductions may create a better long-term result. Income recognized in 2026 may be taxed at a lower rate, while deductions preserved for 2027 may offset income taxed at a higher rate.

Your available options depend partly on your accounting method. A cash-method business may have more flexibility over when it invoices customers or pays deductible expenses. Accrual-method businesses generally recognize income and expenses under different timing rules.

Before changing billing, purchasing or payment practices, consider:

• Whether the transaction has a valid business purpose
• When income must be recognized under the business’s accounting method
• Whether a prepaid expense is currently deductible
• The expected marginal tax rates for 2026 and 2027
• The effect on the qualified business income deduction
• The effect on working capital and banking requirements

Landmark’s article on when a business may want to accelerate income provides additional examples of situations in which reversing the traditional strategy may make sense. The article explains that businesses expecting higher future rates may benefit from recognizing income sooner and preserving certain deductions for later years.

Evaluate the qualified business income deduction

Eligible owners of sole proprietorships and pass-through entities may claim a qualified business income, or QBI, deduction of up to 20% of qualifying income. The deduction is generally limited to 20% of taxable income, with additional restrictions applying at higher income levels.

For 2026, the income-based limitation range begins at taxable income of $201,750 for most filers and $403,500 for married couples filing jointly. It is fully phased in at $276,750 and $553,500, respectively.

Above those thresholds, the deduction may be affected by:

• The amount of W-2 wages paid by the business
• The cost of qualifying depreciable property
• Whether the business is a specified service trade or business
• The owner’s total taxable income
• Other deductions reported on the owner’s return

For some owners, deferring income or accelerating deductible expenses may keep taxable income within the phase-in range and preserve more of the QBI deduction. Increasing W-2 wages before year-end may also improve the result in certain situations.

These strategies must be modeled carefully. A large depreciation deduction or retirement plan contribution might reduce taxable income but could also reduce QBI or affect another limitation. The goal should be to improve the owner’s overall tax position, not simply maximize one deduction.

For additional background, see QBI Deduction 2026 Changes: What Business Owners Need to Know. That article explains that the deduction has been made permanent beginning in 2026 and that the phase-in ranges were expanded.

Compare Section 179 expensing and bonus depreciation

If your business plans to purchase machinery, equipment, vehicles, computers, software or qualifying building improvements, first-year depreciation deductions may significantly reduce 2026 taxable income. In general, an asset must be placed in service by December 31, 2026, to generate a 2026 depreciation deduction.

“Placed in service” means the asset is ready and available for its intended business use. Ordering or paying for equipment by December 31 may not be sufficient if delivery or installation occurs in 2027.

Section 179 expensing

For 2026, the maximum Section 179 deduction is $2.56 million. The deduction begins to phase out when total eligible purchases exceed $4.09 million.

Section 179 may apply to qualifying new or used property, including certain machinery, equipment, software, vehicles and improvements to nonresidential buildings. However, the deduction is subject to taxable-income and other limitations.

Bonus depreciation

100% bonus depreciation is available for eligible assets acquired and placed in service after January 19, 2025. Qualifying property may include machinery, equipment, computers, certain vehicles, software and qualified improvement property.

Section 179 and bonus depreciation can both accelerate deductions, but they don’t operate in exactly the same way. The best combination depends on the property purchased, the business’s taxable income, state tax treatment and the owner’s expected future tax rates.

An immediate deduction is not always the best long-term choice. If an asset is needed primarily to generate a tax write-off, the purchase may weaken cash flow without producing an adequate operating return. It may also be more valuable to spread deductions into later years if the owner expects taxable income or tax rates to increase.

Consider deductible retirement plan contributions

Retirement plan contributions may help reduce taxable income while supporting the owner’s and employees’ long-term financial goals.

If the business already sponsors a qualified plan, review whether additional employer contributions are permitted and financially appropriate. The available deduction will depend on the type of plan, its governing documents, compensation levels, employee eligibility and annual contribution limits.

If the business doesn’t currently offer a plan, discuss available options before year-end. Depending on the business and plan type, potential choices may include:

• A 401(k) plan
• A profit-sharing plan
• A SEP IRA
• A SIMPLE IRA*
• A cash balance or other defined benefit plan*

Plan establishment and contribution deadlines aren’t identical. Some plans may be adopted or funded after year-end, while others require earlier action. Employee notices, plan documentation, testing rules and cash-flow commitments should also be considered.

Retirement contributions can interact with the QBI deduction and other limitations. Run the calculations before committing to a contribution amount.

Review state and local tax exposure created by growth

Revenue growth often comes with operational expansion. Adding remote employees, entering a new market, storing inventory in another state or delivering services across state lines may create new filing and payment obligations.

As part of the year-end review, identify:

• States where employees worked during 2026
• New customer or project locations
• Inventory stored outside the business’s home state
• New offices, warehouses or other facilities
• Sales-tax collection responsibilities
• State income or franchise tax filing requirements
• Local payroll or business-license obligations

These issues may not reduce federal income tax, but addressing them before filing season can reduce compliance surprises and improve the accuracy of the overall tax projection.

Coordinate tax savings with business priorities

Tax deductions are valuable only when they support the broader financial plan. Before implementing a year-end strategy, consider how it will affect:

• Cash available for payroll and operations
• Lending covenants and financial statements
• Planned hiring or expansion
• Owner distributions
• Future tax brackets
• State tax liabilities
• The QBI deduction
• Long-term depreciation deductions

For example, purchasing equipment may reduce current taxable income, but it also uses cash and may create financing obligations. Increasing wages may help support a QBI calculation but will also increase payroll costs. A strategy should be evaluated based on its total financial effect, not one isolated tax benefit.

Turn a strong year into a proactive tax plan

A profitable year creates planning opportunities, but those opportunities need to be coordinated. Income timing, estimated payments, depreciation, retirement contributions and the QBI deduction can affect one another.

If your company expects a significant increase in 2026 income, Landmark can help you prepare a year-end projection, compare available strategies and evaluate their effects on taxes and cash flow before decisions are finalized. Learn more about Landmark’s tax planning and compliance services.

• 10 Tips to Reduce your Small Business Taxes
• When Should you Accelerate Income?
• Deductible Business Expenses: How OBBBA and TCJA Impact 2025 Year-End Tax Planning
• QBI Deduction Basics and How to Qualify
• 3 Year-End Tax Planning Tips

© 2022. Updated October 2026.

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