As the calendar year draws to a close, it's crucial for businesses to engage in strategic tax planning. By taking action before December 31, you can potentially lower your tax liability, enhance cash flow, and set your business up for success as the new year begins. Whether you're an individual entrepreneur or overseeing a growing company, these seven questions are essential for your year-end tax preparation, offering valuable insights into potential savings.

1. Are All Business Expenses Accounted For?

Small costs can contribute to significant deductions when tracked correctly. It's simple to overlook receipts or minor transactions, especially if personal accounts are sometimes used for business expenses. Before the year ends, consolidate all receipts, align your credit card statements, and ensure no expenses are missed. Be sure to include recurring costs like software subscriptions, business meals, professional fees, and mileage. Also, if part of your home serves as an office, related utilities or rent might be deductible. A comprehensive review now ensures that every legitimate expense is accounted for when it's needed most.

2. Should I Make Major Purchases Before Year-End?

If you're contemplating buying new equipment, a company vehicle, or upgrading technology, timing is key. Under Section 179 and bonus depreciation provisions, you may deduct the entire or partial cost of eligible items this year instead of amortizing over several years. Purchasing before December 31 may allow you to expedite these deductions, but be strategic. Ensure the acquisition supports your operational needs and aligns with your long-term growth objectives.

3. Am I Maximizing Retirement Contributions?

Retirement plans are powerful tax-saving tools available not just to employees but also to business owners. Contributions to plans such as SEP IRAs, SIMPLE IRAs, or 401(k)s reduce taxable income and secure futures for both you and your team. If you haven't evaluated your retirement plan options lately, now is a great time. Increased contributions before year-end can decrease your current tax burden while building a foundation for long-term financial stability. Even small businesses can considerably benefit from these savings opportunities.

4. How Should I Evaluate Payroll and Owner's Compensation?

The end of the year is ideal for reviewing compensation for yourself and your team. If your business is an S-Corporation, confirm that your "reasonable salary" complies with IRS standards; improper amounts can be problematic. For sole proprietors or partnerships, assess your withdrawals for the year and whether estimated tax payments align with your projections. Adjustments now can help stabilize cash flow and avoid surprises during tax season. Reviewing payroll also ensures benefits, withholdings, and bonuses are accurately reported before issuing W-2s and 1099s in January.

5. Are There Tax Credits I’m Overlooking?

Tax credits are valuable tools because they reduce your tax bill dollar-for-dollar, often more effectively than deductions. Depending on your industry and activities, you might qualify for credits such as the Research and Development (R&D) credit, energy efficiency credits, or the small business health care tax credit. These programs frequently update, so ask your accountant to verify your eligibility. Even a modest credit can have a significant impact when directly applied to your year-end balance due.

6. Do I Need to Revise My Estimated Tax Payments?

No one wants a tax season shock. If your business income differed from expectations, adjusting your estimated tax payments could prevent penalties and improve cash management. Compare this year's income and expenses with your original forecasts. If you've had a lucrative quarter or introduced new revenue channels, increasing your final quarterly payment might be wise. Conversely, if income dropped, lowering your payment could preserve liquidity. A proactive approach ensures steady financial management.

7. What Will My Tax Situation Be Like Next Year?

While year-end tax planning wraps up the current year, it's also an opportune moment to look forward. Today's decisions can shape your company's fiscal health well into the future. Consider how changes like staffing plans, expansion projects, or expected equipment purchases might affect your 2026 taxes. A forward-thinking discussion with your accountant can help you develop strategies balancing immediate savings with future growth. It may even be beneficial to defer income or expedite deductions based on anticipated income levels next year.

Conclusion: Plan Now for Long-Term Benefits

Successful business owners don't wait until April to address taxes—they plan ahead. A thoughtful end-of-year review can unveil hidden deductions and potential credits, enabling you to make informed decisions that keep more capital in your business. If you're interested in discussing your year-end tax strategy or want to strengthen your financial plan, reach out to your advisor or contact our office before December 31. A little preparation today can lead to substantial savings tomorrow, positioning you for a confident start in the new year.