By Jarret Willey | Founder, JW Tax & Consulting
Some tax moves stop on December 31. Others can wait until your return. Mixing them up is how owners lose a year.
If you run a business that makes a million dollars or more, a handful of decisions only count if they happen this calendar year. Equipment has to be working, not just ordered. Your salary has to actually run through payroll. Your 401(k) has to exist before your last paycheck. Miss those, and by April they’re things the return can only report, not change.
Here’s the short list, in plain English.
| $2,560,000 | 100% | $24,500 |
|---|---|---|
| The 2026 limit on equipment you can write off right away under Section 179 | Bonus depreciation for qualifying equipment acquired after January 19, 2025, now permanent | The 2026 cap on what you can put into a 401(k) from your own paycheck (before catch-up) |
The Moves That Stop on December 31
1. Equipment has to be in service, not just bought
You can write off business equipment in the year you put it to work. That’s the key phrase: placed in service. Ordered isn’t enough. Paid for isn’t enough. It has to be set up and ready to use by December 31.
Two rules make this big. Section 179 lets you write off up to $2,560,000 of equipment in 2026, as long as your business has the income to absorb it. Bonus depreciation is a second write-off rule, and it’s back to 100% for qualifying equipment acquired after January 19, 2025.
One honest note. A write-off now means no write-off later for the same machine. This is timing, not free money. Buy what the business actually needs. Never buy something just for the deduction.
2. Your salary has to run through payroll this year
If your business is taxed as an S-corp, you’re supposed to pay yourself a fair salary. That salary has to be paid through payroll, with taxes withheld, by December 31. You can’t fix a year of owner draws with a paperwork entry in March.
We broke this down in How Business Owners Should Pay Themselves Before December 31.
3. Your 401(k) has to exist before your last paycheck
This is the one owners miss most. A 401(k) deferral is money you choose to put into a retirement plan out of your own pay, before tax. In 2026 you can defer up to $24,500, and the plan can take up to $72,000 total once the business adds its share.
Here’s the catch. If you’re paid through S-corp payroll, the deferral has to come out of a paycheck. So the plan has to be set up, and your choice made, before your last payroll of the year. After that, the $24,500 piece for 2026 is gone.
If you own a one-owner business that isn’t an S-corp, the rules are kinder. A brand-new plan can be set up after year end, up to your filing deadline (without extensions), but only for the plan’s first year. If you already have a plan, your deferral election for 2026 is due by December 31. The business’s own share of the contribution can often wait until the business return is due, too.
More on how these plans work in What Is a Solo 401(k).
4. How you take cash out locks with the year
Salary, owner draws, and profit distributions are all taxed differently. Once December 31 passes, this year’s mix is set. Look at what you’ve taken so far, and what the rest of the year should look like, while you can still change it.
The Moves That Can Wait (But Shouldn’t Be a Surprise)
Not everything has a December deadline. Knowing which is which keeps you from rushing the wrong things.
- The fourth estimated tax payment for 2026 isn’t due until January 15, 2027. If you’re behind, extra tax withheld from a December paycheck generally counts as if it were paid evenly all year. That can shrink an underpayment penalty.
- Some retirement money can go in after year end. The business’s share of a 401(k), and plans like a SEP-IRA, can often be funded up to the business’s return due date.
- An S-corp election for 2027 is due by March 15, 2027. But if you want it, set up payroll so your first 2027 paycheck runs in January.
Can wait doesn’t mean ignore. The best time to decide all of this is the same time you handle the hard stops: now.
When to Act
Now through Thanksgiving: Get the real number
Pull your profit for the year to date and estimate the rest. List any equipment the business needs in the next six months. Check whether you have a 401(k) plan and what your salary has been.
Early December: Lock payroll and the retirement plan
Set your last payroll date with your payroll provider. Many need lead time for a bonus run. Make sure the 401(k) is set up and your deferral choice is in before that last paycheck.
By December 31: Hard stop
Equipment working. Salary paid. Deferrals out of your paychecks. This year’s cash split done.
By January 15, 2027: Last estimate for 2026
Make the fourth estimated payment based on real numbers, not a guess.
March 15 to April 15, 2027: File on what you built
S-corp returns and 2027 S-corp elections are due March 15. Personal returns are due April 15. Fund anything that’s allowed to go in late. By now the plan either happened or it didn’t.
Same Owner, Same Profit: Hands-Off Year-End vs Planned
Illustrative example only. Not a projection of your results, and savings are not guaranteed. Rough federal math using 2026 published rates. Married filing jointly, Florida resident (no state income tax), a one-owner S-corp with no employees, about $1,000,000 of profit before the owner’s pay. Your income, deductions, state, and family situation will change the numbers.
Hands-off year-end: Owner with about $1,000,000 in profit
Reasonable salary of about $250,000–$300,000 through payroll. No retirement plan. The business needs about $100,000 of new equipment, and it gets bought and set up in January.
Federal income tax plus payroll tax on the owner’s salary (illustrative): roughly $255,000–$260,000 for the year. Accurate return. Nothing planned.
Planned year-end: Same owner, same ~$1,000,000 profit
Same salary. A 401(k) is set up in November. The owner defers $24,500 from pay and the business adds $47,500, for $72,000 total. The same $100,000 of equipment is bought and working by mid-December. Plan setup and admin cost is included.
Federal tax (illustrative): roughly $200,000–$210,000 for the year.
That’s about $49,000–$57,000 less going out this year. Be clear on where it comes from:
- About $21,000–$25,000 comes from the retirement plan. Most of that is tax pushed off until the money comes out in retirement. It repeats every year the plan is funded.
- About $28,000–$32,000 comes from the equipment. That’s a one-time timing gain. The same deduction would have shown up a year later if the equipment went in service in January.
Same business. Same profit. Different calendar. Different result.
The Five-Year Math
Illustrative only. If the owner funds the plan the same way every year, the retirement piece alone comes to roughly $105,000–$125,000 less tax paid along the way over five years. Most of that is tax deferred until withdrawal, not saved. About $360,000 also goes into a retirement account the owner controls, before any growth.
The equipment piece is not multiplied by five. It’s real cash in year one, and it’s timing.
All of this assumes the salary is reasonable, payroll is run right, and profit stays near this level. If you have employees, the plan usually has to cover them too, and that changes the math. Ranges, not promises.
❌ Hands-Off Year-End vs ✓ Planned Year-End
❌ Hands-Off
Equipment ordered in December, set up in January
Salary paid however it happened to land
No 401(k), or one set up after the last paycheck
Cash pulled out without a plan for the split
Estimated taxes guessed, or skipped
Finds out in April what the year cost
✓ Planned
Equipment the business needs, working by December 31
Fair salary run through payroll all year
401(k) set up and deferrals in before the last payroll
This year’s salary, draws, and distributions decided on purpose
Fourth estimate based on real numbers by January 15
April is paperwork, not a surprise
Self-Check: Is Your Year-End Actually Planned?
Ask yourself honestly:
- Do you know your profit so far this year, not just your revenue?
- Is any equipment you need going to be working before December 31, or just ordered?
- If you’re an S-corp, has your salary actually run through payroll this year?
- Do you have a 401(k) set up, and will your deferral come out before the last paycheck?
- Do you know the date of your last payroll of the year?
- Has anyone told you which of your moves stop on December 31 and which can wait?
If you’re not sure on most of these, you don’t have a year-end plan. You have a deadline coming.
December 31 doesn’t move. Your plan has to move first.
Ready to set it up while the year is still open?
Tax structure for operators who are done overpaying. Book a strategy call and we’ll look at your real numbers, sort the hard stops from the moves that can wait, and map what has to happen before December 31. Still deciding whether you need planning at all? Start with Is Tax Planning Better Than Tax Preparation?
This is general information, not advice for your situation. Talk with your tax advisor before acting.
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