7 Year-End Tax Planning Strategies to Review Before December 31

Many of the decisions that shape your tax outcome must happen before the year ends, not when your return is filed.

Tax preparation looks backward. It reports income, deductions, and transactions that have already occurred. Proactive tax planning looks forward and gives you time to evaluate your options, implement the right strategies, and make more informed financial decisions.

If you wait until filing season to begin the conversation, many of those opportunities may already be off the table.

The good news is that there is still time to evaluate your 2026 tax position. Here are seven areas to review before December 31.

1. Review Your Entity Structure

Your business structure should evolve as your business grows.

One common point of confusion is the phrase, “I’m an LLC.” An LLC is a legal structure created at the state level, but it does not fully explain how the business is taxed. Depending on its ownership and elections, an LLC may be taxed as a disregarded entity, partnership, S corporation, or C corporation.

That leads to a more useful question: Is your current tax structure still serving you?

The structure you chose when the business launched may no longer make sense as profitability, ownership, and long-term goals change. For example, an S corporation election may create payroll-tax savings in the right situation, but it also introduces payroll requirements, a separate tax return, and additional administrative costs.

Your future plans matter too. Are you preparing to add a partner, raise capital, sell the business, or eventually transfer it to your children? Those goals should be considered before making or changing an entity election.

2. Revisit Owner Compensation

How you pay yourself is directly connected to how your business is taxed.

A sole owner of a disregarded LLC generally takes owner draws rather than receiving a salary. An owner who provides services to an S corporation is generally expected to receive reasonable compensation before taking non-wage distributions.

The common advice to keep an S corporation salary as low as possible can be shortsighted. A lower salary may reduce payroll taxes, but it can also affect other areas of the tax plan, including:

• The qualified business income deduction
• Employer retirement-plan contributions
• Payroll compliance and reasonable-compensation exposure

Sometimes increasing salary and paying additional payroll tax may create a better overall result by supporting a larger retirement contribution or preserving another deduction. No single decision should be evaluated in isolation.

3. Evaluate Retirement Contributions

Retirement contributions can be especially valuable because they may reduce current taxable income while allowing you to keep and invest the money for the future.

For 2026, the employee contribution limit for most 401(k) plans is $24,500, while the total defined-contribution limit is $72,000 before applicable catch-up contributions. The IRA contribution limit is $7,500. Eligibility, plan design, compensation, employee participation, and income limitations can all affect what is available.

Business owners who have already maximized a traditional 401(k) may also want to evaluate options such as a cash-balance or defined-benefit plan. These plans can potentially support larger contributions, but they require careful design and an understanding of the ongoing funding commitment.

Health savings accounts may offer another valuable planning opportunity for eligible individuals. HSAs can provide a deduction or pre-tax contribution, tax-deferred growth, and tax-free distributions when used for qualified medical expenses. Eligibility and contribution rules apply, so the strategy should be reviewed before funding the account. See the IRS guidance on HSAs.

4. Review Owner Benefits and Reimbursements

Some business owners personally pay expenses that are connected to the business but never establish a process for being reimbursed properly.

Depending on the circumstances, an accountable plan may allow a business to reimburse an owner-employee or employee for qualifying expenses such as:

• Business use of a personal vehicle
• Home-office expenses
• Business-related cell phone costs
• Travel and other ordinary business expenses

For reimbursements to qualify under an accountable plan, the expenses must have a business connection, be properly substantiated within a reasonable period, and any excess reimbursements must be returned. When these requirements are met, qualifying reimbursements generally are not treated as employee wages. Simply transferring money and calling it a reimbursement is not enough. Review the IRS accountable-plan requirements.

Business owners with children may also consider employing them for legitimate, age-appropriate work. Compensation must be reasonable, the work must actually be performed, and payroll and documentation requirements must be followed. Earned income may also allow the child to contribute to a Roth IRA, subject to annual limits and other rules.

Depending on the business structure and circumstances, other employee and owner benefits, including certain health benefits, may also be worth reviewing as part of the overall compensation strategy.

These strategies work when they reflect real business activity and are implemented correctly.

5. Time Major Purchases Carefully

Do not purchase something solely for the tax deduction.

If a business genuinely needs new equipment, technology, furniture, machinery, or a vehicle, the purchase may generate revenue while also creating a depreciation deduction. But a write-off does not make the purchase free.

For example, spending $100,000 to save $37,000 in taxes still means spending $63,000 before financing costs. The purchase should first make sense for the business.

Timing also matters. Property generally must be placed in service, meaning ready and available for business use, before year-end to qualify for that year’s depreciation. Signing a contract or paying a deposit in December may not be enough if the equipment is not delivered and available for use until January.

Current law may allow qualifying property to receive accelerated depreciation, but eligibility depends on the asset, acquisition date, use, and other requirements. Vehicles have additional limitations, including substantiation and business-use rules. Keep detailed records and review the transaction before assuming the full purchase price will be deductible.

6. Coordinate Your Real Estate Strategy

Real estate offers meaningful tax-planning opportunities, but the result depends on how the activity is classified and whether the taxpayer can currently use the losses.

Rental real estate is generally passive unless an exception applies. Passive losses may offset passive income, but they generally cannot offset wages or active business income. Unused losses may be suspended for use in a future year.

Depending on the facts, potential planning areas may include:

• Real Estate Professional Status
• Short-term rental with material participation
• Cost segregation to take advantage of accelerated depreciation
• Section 1031 like-kind exchanges
• Qualified Opportunity Zone investments

A cost segregation study can accelerate depreciation by identifying components of a property that may qualify for shorter recovery periods. However, creating a large deduction does not automatically mean the loss can be used against other income in the current year.

The ownership structure, rental activity, participation, holding period, cash flow, and larger investment plan all need to work together. A tax benefit alone does not make a property the right investment.

7. Look for Tax Credits and Correct Estimated Payments

Tax credits are often more valuable than deductions because they generally reduce tax liability dollar for dollar, while a deduction reduces the amount of income subject to tax.

One commonly overlooked opportunity is the Research and Development Tax Credit. It is not limited to laboratories or traditional scientific research. Businesses may qualify when they develop or improve products, software, formulas, techniques, or processes while working through technical uncertainty.

Manufacturers, software companies, engineering firms, architects, food and beverage companies, and other innovators may be performing qualifying work without realizing it. Eligibility requires a detailed review of the activities, expenses, and supporting documentation.

Estimated payments should also be reviewed before year-end. Paying too little may result in penalties. Paying significantly more than necessary may leave the government holding money you could have used elsewhere.

Updated projections can help determine whether you should:

• Make or adjust an estimated payment
• Increase or reduce withholding
• Modify owner payroll
• Implement another strategy that affects projected taxable income

The goal is not simply to avoid a balance due. It is to make an informed decision about how much to pay and when.

Your Tax Strategy Has to Fit Your Life

The strategy with the largest theoretical deduction is not always the right strategy.

A recommendation should account for your:

• Cash flow
• Business plans
• Investment goals
• Available time
• Family priorities
• Risk tolerance
• Willingness and ability to implement it

If you do not want to own real estate, purchasing a rental solely for the tax benefits is unlikely to be a good recommendation. If every available dollar is being reinvested into a growing business, a strategy requiring a large cash commitment may not be realistic.

A strategy that never gets implemented does not create a result. The best tax plan is one that supports your larger goals and can actually be completed.

Build Your Year-End Action Plan

Organize each potential opportunity into one of four categories:

Act now

The strategy is relevant and has an approaching deadline.

Investigate

The opportunity may be relevant, but you need additional information or professional guidance.

Monitor

The strategy may make sense later, but it is not the right fit for this year.

Not applicable

The strategy does not align with your income, activities, goals, or interests.

For every item in the first two categories, identify:

1. The next action
2. Who is responsible
3. The information required
4. The applicable deadline
5. The expected financial or tax benefit

This is how a list of ideas becomes an actionable plan.

Find the Opportunities You May Be Missing

You do not have to wait until filing season to learn what you could have done differently.

Complete Oro’s 2026 Tax Opportunity Finder to receive a more detailed look at areas that may deserve attention across your income, investments, or business.

Find Your 2026 Tax Opportunities

This article is intended for general educational purposes and does not constitute tax, legal, investment, or accounting advice. Tax strategies depend on individual facts and circumstances. Consult a qualified professional before implementing any strategy.