December 31 is the firm cutoff for many small business tax moves. An estimated tax payment may be late with a modest penalty, but New Year's Eve closes the current tax year. Anything not completed by midnight is gone, regardless of your intent or January advice from an accountant.
Most December tax moves depend on an approximate current-year income figure. It need not be exact. Your P&L through November should provide enough information for the decisions below. If you have not run it, do that first. These moves only help when you know where you stand.
These are common year-end planning techniques, not advice for your entity, filing status, or tax situation. Have a CPA or enrolled agent review your plan first, particularly the retirement account choices below.
Maximize Your Retirement Contribution Before Your Deadline
Retirement contribution deadlines vary by account type, and confusing them is a common mistake.
With a Solo 401(k), the employee elective deferral must be elected by December 31. For 2025, the limit is $23,500, or $31,000 if you are 50 or older. The employer contribution, generally up to 25% of net self-employment compensation and subject to the overall plan limit, can typically wait until your tax filing deadline, including extensions. The employee portion cannot: that window closes at year-end.
A SEP-IRA does not have a December 31 deadline. Contributions can generally be made through your tax filing deadline, including extensions, giving you until October 2026 for a 2025 contribution. The 2025 limit is up to 25% of net self-employment income under the adjusted self-employed formula, with a maximum of $70,000. That timing helps founders whose final income remains unclear late in filing season.
If your Solo 401(k) still has employee deferral capacity and cash permits, funding it by December 31 is among the highest-return December actions available to a self-employed founder.
Prepay Deductible Expenses Due in January
For cash-basis taxpayers, including most small businesses, a deductible expense counts when paid, not when its benefit arrives. That creates a December window for costs you would incur anyway.
A software subscription renewing in January can often be renewed in December, moving the deduction into the current tax year. The same may apply to business insurance, professional memberships, and prepaid service retainers. The IRS 12-month rule generally bars deducting a prepaid cost extending more than 12 months beyond payment or beyond the end of the tax year following payment. Paying one billing cycle early for software or insurance fits within those limits.
Accelerating deductions helps only when it lowers your tax liability. If 2026 income should be much higher and 2025 income is low, waiting until January may offset next year's higher marginal rate more effectively. Compare both options in about 20 minutes before prepaying.
Consider Deferring Income Into January
On a cash basis, income counts when received, not invoiced. An invoice sent in late December and paid in January is January income, not December income.
Founders with billing flexibility can send some invoices in the first week of January instead of the last week of December, deferring income into the next tax year. This suits variable or project work, not monthly retainers with regular invoice schedules. It makes financial sense only if your 2026 marginal rate is the same as or below your 2025 rate.
This does not mean misrepresenting your operations or manipulating billing. Use the approach only when invoice timing is genuinely flexible and an early January date reflects a legitimate business choice.
Review Equipment and Depreciation Options
If you need equipment and have delayed buying it, December may be a useful time to purchase. Section 179 allows the full cost of qualifying equipment placed in service during the tax year, up to the annual limit. For 2025, that limit is $1,160,000, well above most small business purchases. Bonus depreciation has declined in recent years. For 2025, it is 40% of qualified asset cost for property placed in service during the year.
"Placed in service" matters. Equipment must be bought and available for business use before December 31, not merely ordered. A computer shipping on January 2 is a 2026 deduction, even if ordered or paid for earlier.
A December Planning Scenario
By late November, a solo-practice bookkeeper estimates 2025 net self-employment income at $96,000. She opened a Solo 401(k) in 2023 and has made $11,000 in employee deferrals this year.
After her November estimated tax payment, her business checking account holds $28,000. In December's second week, she elects another $12,500 in Solo 401(k) employee deferrals before December 31, reducing 2025 taxable self-employment income by that amount. She also renews project management software early, paying its $720 annual fee and taking the deduction in 2025. Finally, she moves two smaller invoices to her first January billing run, keeping about $3,800 of project income out of 2025.
None of these steps required a tax professional to carry out. They did require an approximate income figure by early December and a short list of options to review. Her January CPA meeting can focus on final return calculations instead of beginning from zero.
What Year-End Planning Cannot Fix
December planning works best when founders have tracked their numbers all year. Rebuilding financial history from receipts and bank statements during the final two weeks leads to poorer decisions. Good year-end planning follows quarterly estimated tax tracking and monthly P&L reviews. It cannot replace them.
No December tactic repairs a year of underestimated quarterly payments. If your 2025 Q1 through Q3 estimates were too low, April may bring both the unpaid tax and an underpayment penalty. The Q4 payment, due January 15, 2026, can lower your April balance but cannot erase earlier-quarter penalties.
Year-end narrows the choices. It does not create them. Founders who benefit most from December usually kept current numbers and planned during Q2 and Q3. Still, with a month remaining, the moves above are worth reviewing.