Year-End Tax Planning - Strategic Moves Before December 31

Disclaimer: The information on this website (including all examples, explanations, and content) is for general informational purposes only and should not be considered tax, legal, or financial advice. Always consult with a qualified professional about your specific situation.

You Have About 4-12 Weeks to Change Your Tax Outcome

Most business owners think about taxes in April. By then it's too late.

October, November, and December is when you actually have control over your tax situation. The decisions you make in the next few weeks will directly impact how much you owe (or don't owe) on April 15.

Here's what you need to do before December 31 to minimize your tax liability for the year.

The Time Sensitivity of Year-End Tax Planning

December 31 is a hard deadline. Expenses incurred or paid after that date don't count for this year's taxes - they count for next year.

This creates a real opportunity: if you can legally accelerate expenses or defer income, October, November, and December is when you make those moves.

But you have to act before the deadline. January 1 is too late.

First: Calculate Your Expected Tax Liability

Before you make any moves, you need to know where you stand.

Run Your Year-to-Date Numbers

Pull together:

• Year-to-date revenue (all income sources)
• Year-to-date expenses (all categories)
• Rough net profit for the year
• Any estimated taxes you've already paid

Project Your Full-Year Liability

Take your current profit and project it to year-end based on recent trends.

If you're tracking above expectations: Your tax liability will be higher than expected. You need aggressive year-end moves.

If you're tracking below expectations: Your tax liability will be lower. You might not need as many year-end deductions.

If you're roughly on track: You can adjust your approach based on your original plan.

Get Professional Input

This is exactly where working with us, your tax preparer, or CPA matters most.

We have software and expertise to calculate your likely tax liability, identify which deductions would have the biggest impact, and recommend specific moves tailored to your situation.

Doing this yourself is possible but time-consuming, and mistakes are expensive.

Core Year-End Tax Strategies

Strategy #1: Accelerate Deductible Expenses

If you're facing a higher-than-expected tax bill, accelerating expenses into December reduces your taxable income.

Examples of expenses you can accelerate:

Equipment purchases - If you were planning to buy equipment in January, buy it in December instead. You get the deduction (or Section 179 write-off) this year instead of next year.

Professional services - Accounting, legal, consulting fees paid in December are deductible this year. Pay invoices before year-end or prepay for Q1 services.

Insurance renewals - Some insurance premiums renew in December. Pay early to get the deduction this year.

Software subscriptions - Many software subscriptions renew in December. Pay annual renewals in December rather than January.

Vehicle and equipment maintenance - Schedule and pay for maintenance and repairs in December rather than January.

Office supplies and inventory - Purchase office supplies or inventory before year-end to accelerate the deduction.

Advertising and marketing - Run year-end marketing campaigns and pay invoices in December.

Charitable contributions - If you plan to donate, do it in December to claim the deduction this year.

Important Caveat: Real Expenses Only

You can only accelerate expenses you actually incur or pay. You cannot:

• Pay for services you won't receive until January and deduct them in December
• Buy equipment you don't actually need just to create a deduction
• Prepay for services spanning multiple years and deduct it all at once

The IRS calls this "sham transactions" and will disallow them if audited.

Test: "Would I make this purchase/payment if it didn't reduce my taxes?" If the answer is no, don't do it.

Strategy #2: Defer Income (If You Can)

The flip side of accelerating expenses is deferring income if possible.

Examples:

Delay client invoicing - If you complete work in December but can invoice in January, delaying the invoice to January defers the income to next year.

But be careful: if you're on accrual basis accounting, the income is recognized when earned, not when invoiced. Deferring invoicing doesn't change your tax liability.

Delay milestone payments - If you have contracts with milestone-based payments, timing when you hit milestones can affect when income is recognized.

Negotiate payment timing - For large year-end sales or contracts, negotiate payment for January instead of December.

Again, this only works if you're truly deferring the income, not manipulating accounting records.

Strategy #3: Maximize Retirement Contributions

Retirement contributions are tax-deductible (for most retirement plans) and this is your last chance of the year.

Types of retirement plans:

Solo 401(k) (for self-employed) - You can contribute up to $69,000 for 2024 (or $76,500 if over 50). Contributions must be made by December 31.

SEP-IRA - You can contribute up to 25% of your net self-employment income, capped at $69,000 for 2024. Contributions must be made by December 31.

SIMPLE IRA - Limited to $16,000 per year (or $19,500 if over 50). Contributions must be made by December 31.

Traditional IRA - Limited to $7,000 per year (or $8,000 if over 50). Contributions can be made until April 15 of the following year, but making them in December gives you the deduction this year.

Which is best for your situation? That depends on your business structure, income, and whether you have employees. Discuss with us, your tax preparer, or CPA.

If you don't have a retirement plan set up yet and want one, you need to establish it by December 31 to make contributions this year. We can help you do this.

Strategy #4: Section 179 and Bonus Depreciation

Equipment purchases create deduction opportunities through Section 179 and bonus depreciation.

Section 179 allows you to immediately deduct qualified business equipment instead of depreciating it over years. Limits apply (check current limits with us, your tax preparer, or CPA).

Bonus depreciation allows 100% deduction of qualified business property in the year it's placed in service.

Key point: The equipment must be "placed in service" by December 31 to qualify for this year's deduction.

"Placed in service" means it's actually in use, not just purchased. A truck sitting on the lot on December 31 doesn't count. A truck you're actually using counts.

So if you're planning equipment purchases, complete them and get them operational by year-end.

Strategy #5: Harvesting Business Losses

If you have a business losing money, or if you have multiple business entities and one is profitable while another is losing money, year-end is when you strategically manage those losses.

Example: You own two franchise locations. Location A made $80,000 profit. Location B lost $20,000. Your net profit is $60,000.

If you're taxed as two separate entities (which sometimes makes sense), you can use the $20,000 loss in Location B to offset the $80,000 profit in Location A.

But your business structure matters. This only works in certain situations.

Discuss with us, your tax preparer, or CPA whether loss harvesting applies to your situation.

Strategy #6: Timing Large Purchases

Equipment purchases are strategically timed based on your tax situation.

If you expect high income this year: Buy equipment in December to create a deduction that offsets some of the high income.

If you expect low income next year: Delay equipment purchases to January so the deduction applies to next year's lower income (though the deduction might be worth more this year in a higher bracket).

If your income is lumpy: Time equipment purchases for years with highest income to maximize the benefit.

Industry-Specific Year-End Tax Moves

For Franchise Owners

Timing of royalty payments - If your royalties are due in January but calculated on December revenue, confirm the timing with your franchisor. This affects whether December royalties are deductible this year or next year.

Marketing fund prepayments - Some franchisors allow prepaying marketing funds in December for next year's marketing. Check if this is an option.

Equipment and technology upgrades - If you've been putting off upgrading POS systems or other equipment, December is the time.

Multi-unit consolidation - If you have multiple units, year-end is when you review whether consolidating or separating them for tax purposes makes sense.

For Healthcare Providers

Equipment and furniture purchases - Medical equipment, dental chairs, office furniture - if you've been planning upgrades, December is the time.

Continuing education - Register for and pay for CME conferences and courses in December (even if they occur in January) to deduct this year.

Professional liability insurance - Some policies renew in December. Pay in December rather than January.

Supplies and inventory - Stock up on disposable medical supplies in December to accelerate the deduction.

Staff bonuses - If you pay year-end bonuses, pay them in December (not January) to deduct this year. Employees must receive them by December 31 to be deductible this year.

For Contractors and Service Businesses

Vehicle purchases or upgrades - If you were planning new trucks or equipment vehicles, December is the time to purchase and put in service.

Tools and equipment - Accelerate any planned tool or equipment purchases to December.

Subcontractor payments - If you have work done by subcontractors, pay the invoices in December rather than January.

Vehicle maintenance - Schedule and pay for vehicle maintenance and repairs in December.

For Multi-Location Businesses

Corporate overhead allocation - Year-end is when you review how corporate overhead is allocated across locations for tax purposes.

Equipment distributed across locations - Centralize purchases of equipment used across locations to maximize Section 179 or bonus depreciation benefits.

Payroll timing - If you have flexibility on when certain payroll is processed, December timing can affect which year's deductions certain expenses hit.

What You Should NOT Do

Don't Defer Income Fraudulently

You can't manipulate accounting records to move income between years when it doesn't actually belong there.

Delaying legitimate invoicing is one thing. Creating fake payment timing or not recording income is fraud.

Don't Prepay for Multi-Year Services and Deduct Them All Now

You can't prepay for services spanning multiple years and deduct the entire amount in the current year.

The IRS requires deductions to match when services are actually provided.

Don't Ignore Documentation Requirements

Even legitimate year-end deductions need documentation. Don't create deductions without receipts, invoices, or proof of payment.

The Real Timeline for Year-End Tax Planning

October/November: Start reviewing your year-to-date numbers and get a preliminary estimate of your tax liability.

Early December: Meet with us, your tax preparer, or CPA to get a firm estimate of your expected tax liability and discuss specific year-end strategies.

Mid-December: Execute planned moves (make equipment purchases, accelerate expenses, make retirement contributions).

Late December: Finalize any remaining moves and confirm everything is documented properly.

December 31: Final deadline for expense payments, equipment placement in service, and retirement contributions (for most plans).

January-February: Work with your tax preparer to file your return, taking advantage of all deductions captured through year-end planning.

Why Professional Year-End Tax Planning Pays for Itself

Year-end tax planning often pays for itself in a single strategy.

We Know What's Actually Deductible

Not all year-end moves are equally valuable. An equipment purchase might be worth $5,000 in tax savings. A retirement contribution might be worth $15,000. We can prioritize moves that have the biggest tax impact.

We Calculate the Exact Benefit

We don't guess about how much a deduction will save you. We can calculate the precise impact on your tax liability.

If making a $10,000 equipment purchase saves you $2,400 in taxes, and it costs $500 to set up the transaction properly, it's worth it. We help you identify these high-value moves.

We Handle Documentation and Compliance

Year-end moves create complexity around documentation, timing, and compliance. We can ensure everything is done correctly so the IRS accepts the deduction if you're audited.

We Coordinate with Your Overall Tax Strategy

Year-end planning isn't isolated - it connects to quarterly estimated taxes for next year, retirement planning, business structure optimization, and multi-year tax strategy.

We can coordinate all of this so your year-end moves set you up well for next year, not just reduce this year's taxes.

We Make Time for Changes

If something significant changes in your business or life situation between now and December 31, we can adjust the plan accordingly.

DIY planning means you make a plan in early December and execute it regardless of what changes. Professional planning adapts to your actual situation.

Your Action Plan

This week:

1. Pull together your year-to-date financial records
2. Calculate rough year-end profit based on current trends
3. List any major expenses or equipment purchases you've been considering
4. Identify any retirement planning opportunities (retirement accounts you're not maxing out)

Next week:

1. Meet with us for a year-end tax planning session
2. Get a firm estimate of your expected tax liability
3. Discuss specific moves and their tax impact
4. Prioritize which moves make sense for your situation

Before December 15:

1. Execute planned year-end moves (equipment purchases, expense acceleration, retirement contributions)
2. Ensure all equipment is placed in service (actually in use)
3. Document all transactions with receipts and invoices
4. Confirm payment is made and recorded

By December 31:

1. Complete any final year-end moves
2. Ensure all retirement contributions are deposited
3. Final reconciliation of all year-end transactions
4. Organize documentation for tax preparation

January:

1. Meet with us, your tax preparer, or CPA to file your return
2. Discuss how year-end planning worked out
3. Plan for next year based on actual results

Don't Wait Until April to Think About Taxes

Year-end tax planning is the most powerful tax strategy available to business owners. Unlike April tax preparation (where you can only report what already happened), October, November, and December planning actually lets you control your outcome.

The business owners who minimize their tax liability are the ones who do planning in October, November, and December, not accounting in April.

It takes just a few strategic moves in the right direction to save thousands in taxes.

For small business owners across all industries - franchisees, contractors, service businesses, healthcare providers, and others - we specialize in year-end tax planning that's specific to your situation.

We can calculate your exact tax liability, identify the year-end moves that will have the biggest impact, and help you execute them properly so the IRS accepts them.

More importantly, we can handle the complexity so you can focus on your business.

Ready to take control of your 2024 tax outcome? Contact us here to schedule a year-end tax planning session and identify specific moves that will reduce what you owe.