Most tax planning has to happen before December 31. Once the year closes, the options narrow to filing the return and writing the check. The questions below are the ones worth working through with your accountant in October or November, not in March when nothing can be changed.

Is the current entity treatment still the right one? An LLC taxed as a sole proprietorship or partnership pays self-employment tax on the full profit. The same LLC electing S-Corp treatment can split income between wages and distributions, reducing self-employment tax on the distribution portion. The election usually has to be made before the year starts, but late elections are possible in some cases. If profit has grown significantly, this conversation matters. The wrong structure costs real money every year.

Have I paid in enough through estimated taxes to avoid an underpayment penalty? The safe harbor is generally 100% of last year’s tax liability or 110% if your prior year adjusted gross income was over $150,000. If you’ve had a strong year and only paid estimates based on last year’s numbers, you may still owe a large balance in April. Knowing the number now means you can plan for it instead of being surprised.

Should I set up or fund a retirement plan? Timing matters here. A SEP IRA can be opened and funded up to the extended due date of the return. A Solo 401(k) generally needs to be established by December 31, even though contributions can be made later. A SIMPLE IRA had to be in place earlier in the year. Every dollar contributed reduces taxable income, and for a profitable business owner this is one of the largest deductions available. Get the plan structure right before the calendar runs out.

What depreciation deductions are available on equipment, vehicles, or improvements? Section 179 and bonus depreciation let you write off qualifying purchases in the year placed in service rather than depreciating over several years. If you’ve been thinking about buying a truck, computers, or production equipment, the timing of the purchase determines which tax year gets the deduction. Just buying for the deduction is foolish, but accelerating planned purchases can make sense.

Has inventory been counted and adjusted properly? Cost of goods sold depends on accurate ending inventory. Obsolete or damaged inventory that’s still on the books overstates assets and understates expenses. A physical count before year-end, with write-downs for items that can’t be sold at cost, often produces a legitimate deduction owners overlook.

Are there year-end payroll items to address? Bonuses to employees, owner W-2 wages, accountable plan reimbursements, and health insurance for S-Corp owners all need to run through payroll before the last paycheck of the year. Missing these means missing the deduction or having to file corrections later. Getting it right the first time saves the cleanup.

Is owner compensation set correctly? S-Corp owners need to pay themselves a reasonable salary through payroll. Too low draws IRS scrutiny. Too high gives up the self-employment tax savings that made the S-Corp election worthwhile. The number needs to reflect what the role would pay if you hired someone else to do it. Adjusting before year-end is easier than fixing it later.

What deductions can be accelerated or deferred? Cash basis businesses can prepay some expenses in December to pull deductions into the current year. They can also delay year-end invoicing to push income into next year. This works in both directions depending on which year is expected to have higher income. Accrual basis businesses have less flexibility but still have some options around bonuses, retirement plan accruals, and prepaid expenses that meet the 12-month rule.

Do I have the cash on hand to pay the tax bill? This is the question owners avoid until April. Profitable businesses generate tax liability that has to be paid in cash. If the money has been reinvested in inventory, equipment, or receivables, you may be profitable on paper and still short on cash when the return is due. Knowing the projected tax now means you can build the reserve over the next few months instead of scrambling. Working with someone who provides proactive tax strategy turns this from a surprise into a plan.

These conversations are the difference between filing a return and managing a tax position. We work through them with clients every fall as part of the small business accounting, bookkeeping and tax services in Jacksonville, NC that we provide year-round. The owners who treat year-end planning as a real meeting, not a quick phone call, are the ones who consistently keep more of what their businesses earn.