Key insights
- A few well-timed year-end decisions could lower your tax bill, improve cash flow, and capture deductions before key deadlines pass.
- Planned equipment or property purchases may deliver larger current-year deductions when qualifying assets are acquired and placed in service before year-end.
- Changes to your entity structure or accounting method could shift taxable income, defer taxes, and better reflect how your business operates today.
- Reviewing credits, payments, receivables, and investments before December 31 can uncover savings opportunities that may disappear once the year closes.
Uncover year-end tax opportunities for your business.
A little planning before year-end could potentially lower your business’s tax bill and allow you to capture available deductions and credits.
Some practical strategies can help you uncover possible tax savings, avoid missed opportunities, and have a more productive conversation with your tax advisor before December 31.
What year-end tax planning strategies should businesses consider?
There’s no single year-end move that works for every situation. The right approach may involve evaluating your entity structure or accounting method, while new and expanded deductions could create additional savings on purchases.
Use the ideas below to think through what fits your business.
1: Explore timing of fixed asset purchases
The timing of fixed asset purchases can affect when deductions are claimed and your business’s cash flow. If you’re already planning to buy equipment, improve a facility, or invest in other qualifying property, placing those assets in service before year-end may create a larger current-year deduction.
The One Big Beautiful Bill Act (OBBBA) permanently reinstated 100% bonus depreciation for qualified property acquired and placed in service after January 19, 2025, added an immediate deduction for the cost of certain production-related buildings, and expanded Section 179 expensing.
These changes allow you to potentially cut your taxes by acquiring fixed assets before year-end and enhance the tax benefits from a cost segregation analysis.
2: Review entity structure
Your entity structure shapes how business income is taxed, how owners are paid, and which rules apply when the business grows or changes hands. Reviewing it can reveal whether your current setup still fits your operations, ownership plans, and tax position.
Common entity structures include:
- C corporation
- S corporation
- Partnership
- Sole proprietorship
OBBBA introduced changes that may influence entity selection, including a permanent extension of the 20% pass-through income deduction and expanded qualified small business stock rules to allow certain C corporation shareholders to exclude up to $15 million (or, if greater, ten times stock basis) in gains from stock sales.
Consider how these changes could affect your business’s tax structure, including the cash tax cost of operating as a C corporation, S corporation, or partnership. Your decision should also account for factors beyond taxes.
Get practical ideas for addressing year-end tax questions and planning across individual, business, and specialty tax areas. Watch our webinar to start the conversation.
3: Weigh accounting method changes
Your accounting method controls when income and expenses are reported for tax purposes, so a change may shift taxable income and free up cash.
Businesses that have grown, changed how they bill customers, or kept the same method for years may find another approach better reflects how the business operates today.
Example: SCo is an S corporation whose income is subject to a 30% income tax rate. Management considered a number of accounting method changes and decided to change from the overall accrual method to the cash method. That allowed the company to defer $500,000 of income and save approximately $150,000 in tax.
Overall cash method of accounting
The 2017 tax reform bill expanded the availability of the cash method of accounting, yet some eligible businesses have remained on the accrual method. The cash method of accounting generally defers recognizing income relative to the accrual method because most taxpayers have more receivables than payables.
Advance payments for goods
Accrual-method taxpayers can account for certain advance payments in one of two ways:
- Full-inclusion method — Report payments as income in the year received
- Deferral method — Report payments as income in the year of receipt to the extent included in revenue for book purposes; defer the remainder to the next tax year
Example: CookieCo is subject to a 30% tax rate. CookieCo sells $100 of gift cards in a given year. As of year-end, $80 of the gift cards have not been redeemed and are reported as a liability for book purposes. CookieCo has two options to report the revenue from gift card sales. Under the full inclusion method, it reports $100 of income in the year the cards were sold. Under the deferral method, it reports the $20 of income, recognized in the books as income, in the year the cards were sold and $80 of income the following year. The deferral method saves CookieCo $24 in taxes in the year of sale ($80 deferral x 30% tax rate).
More year-end planning strategies to consider
Business tax planning is just one piece of your year-end strategy. Discover financial planning opportunities for individuals, along with year-end strategies to strengthen your operations, reporting, and forecasting.
Prepaid expenses
Accrual-method taxpayers can generally deduct certain prepaid expenses with a term of up to 12 months, including:
- Insurance
- Taxes
- Warranty or maintenance service contracts
Fixed asset methods
If you own a business or investment real estate, there are several ways you may be able to accelerate deductions:
- Perform a cost segregation analysis to determine the appropriate tax life of various real estate assets
- Conduct a repair analysis to identify costs that can be expensed rather than capitalized
- Complete a Section 179D analysis to accelerate deductions related to an energy efficient building
Clean, accurate fixed asset records can reveal missed deductions, support tax filings, and make it easier to decide which assets to repair, replace, or retire.
Inventory methods
There are generally two acceptable inventory valuation methods: cost or lower-of-cost-or-market. The lower-of-cost-or-market inventory method takes more time but may reduce your inventory value and thus accelerate deductions.
A business may be able to deduct obsolete or damaged inventory if it can no longer sell the inventory in a normal manner or at its normal price.
Deducting obsolete inventory is available only if the inventory is disposed or the taxpayer establishes the reduction in its value by offering the inventory for sale to the public at a reduced price within 30 days after the inventory date. Evaluate your inventory for potential valuation-related adjustments.
The uniform capitalization rules are complex. You may be able to accelerate tax deductions by analyzing your capitalization methodologies.
As an example, you may not have fully explored the tax benefits of the modified simplified production method uniform capitalization (UNICAP) calculation option from November 2018 final regulations.
As the year wraps up, it’s a great time to take a fresh look at your personal finances. Explore practical strategies that could help you preserve more of your wealth and improve tax efficiency.
4: Create a strong tax credits and incentives strategy
Tax credits and incentives can provide valuable tax savings for activities your business may already be undertaking, from research activities to energy projects. Reviewing eligibility and deadlines early allows businesses to consider eligibility, documentation, and timing requirements as part of their planning.
OBBBA accelerated the phase-out of many renewable energy credits, leaving a limited window for taxpayers to secure permanent tax savings. For example, to qualify for solar and wind energy credits, construction must have begun by July 4, 2026, or the project must be completed by December 31, 2027.
If you’re planning to claim energy tax credits or incentives, you should review current laws and develop a strategy to meet timelines.
Full expensing of domestic research and experimentation expenses has been restored. Forecasting the ability to expense versus continuing to capitalize can help you identify the most favorable approach.
5: Accelerate expense payments
Certain expenses — such as those incurred by cash-method taxpayers or paid to related parties using the cash method — are deductible only when paid. Other expenses — such as accrued bonuses payable to employees — are generally deductible only if paid within 2.5 months of year-end. You can accelerate tax deductions by carefully timing expense payments.
Example: Abigail owns 100% of Trail Corp., an accrual method taxpayer. Trail Corp. owes Abigail $50,000 for a bonus she earned this year. If Trail Corp. pays the bonus before year-end, it can deduct the bonus this year. If it pays the bonus on January 1 next year, the deduction is deferred. Abigail must pay tax on the bonus in the year paid, so planning should consider both the corporate- and individual-level tax consequences.
6: Harvest tax losses
Receivables or investments that have lost value may offer a tax deduction, but the loss generally must be documented and recognized within the tax year.
If your business uses the accrual method, you can claim a bad debt deduction for uncollectible receivables you write off during the year. Additional planning measures may be available to harvest tax losses from underwater or worthless investments.
FAQs: Answers to common year-end tax questions
A: Yes, assuming eligibility requirements are met. This change can defer taxes and may offer long-term financial benefits.
A: Pass-through entities have no dollar threshold but can’t be considered a “tax shelter,” which includes a business that allocates losses to limited partners. C corporations and partnerships with C corporation partners must have average annual gross receipts under $32 million in 2026.
A: Yes. Under the LIFO conformity rule, a business using LIFO for federal income tax purposes generally must also use LIFO to measure and report inventory in its GAAP financial statements. Because the change can affect reported inventory, income, financial ratios and lending agreements, consider both the tax savings and the financial reporting impact before making the switch.
A: Changing accounting methods allows for tax deferral. However, if the company continues to operate and is not sold, the deferral can stretch out indefinitely, making the net present value of the deferred tax low.
A: It’s a great time to consider changing your accounting method; whether it’s the right time to make a change will depend on your particular circumstances. With changing interest rates, the timing of income and deductions has become more impactful. Reassessing your accounting method — whether cash or accrual — can help enhance your tax position.
A: No. While OBBBA marked the end of some tax credits, the R&D credit continues to be available. If your company has not historically claimed the credit, it may be worth a brief discussion to evaluate whether the R&D credit is available.
How CLA can help with year-end business tax planning strategies
Year-end decisions can pile up quickly, especially when tax law changes, cash flow needs, and reporting requirements pull you in different directions.
CLA’s business tax professionals can assess your tax position, model entity and accounting method choices, identify credits and deductions, and review fixed assets and inventory for overlooked opportunities.
You’ll gain a clearer view of the tradeoffs, timing, and steps that fit your business, so you can act before key deadlines and avoid choices that may create issues later.
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