Year-End Tax Planning: 10 Actions Before December 31

Year-end planning differs from filing season planning because the choices are still available to you. After December 31, your options for the prior year are gone. A 30-minute call in November saves more money than three hours in April.

1. Maximize Retirement Contributions

Solo 401(k): The elective deferral election must be made by December 31. 2025 contribution limit: $23,500 (or $31,000 if age 50+), plus up to 25% of net self-employment income as employer contributions, maximum combined $70,000. SEP-IRA: No December 31 deadline — fund until your tax return due date including extensions.

2. Accelerate Business Expenses

Pay outstanding invoices, prepay next year's business insurance, stock deductible supplies, or make charitable contributions before December 31 — especially if your income this year is higher than you expect next year.

3. Review Your S-Corp Salary

Your officer compensation must be "reasonable" — comparable to what you would pay an employee performing your role. If it is too low, the IRS may reclassify distributions as wages, triggering payroll tax assessments plus penalties. Review before December 31.

4. Confirm Estimated Tax Payments Are Sufficient

The Q4 payment is due January 15. Safe harbor: pay at least 100% of last year's total tax liability (110% if AGI exceeded $150,000), or 90% of this year's expected liability. Underpayment penalty accrues from each missed quarterly deadline.

5. Section 179 and Bonus Depreciation

Equipment and software placed in service before December 31 may be fully expensed in the current year under Section 179 (up to $1.22M for 2024) or bonus depreciation. Bonus depreciation is being phased down — plan equipment purchases with timing in mind.

6. Defer Income Where Possible

Cash-basis businesses can delay billing or hold off collecting a large receivable until January, shifting that income to the following year. Useful when you expect to be in a lower bracket next year or when a large one-time item inflated this year's income.

7. Harvest Capital Losses

Sell positions with unrealized losses before December 31 to offset capital gains dollar-for-dollar. Net capital losses up to $3,000 per year can offset ordinary income. Unused losses carry forward indefinitely to future years.

8. HSA Contributions

2025 limits: $4,300 for self-only coverage, $8,550 for family (plus $1,000 catch-up contribution if age 55+). HSA contributions are deductible above the line — no itemizing required. You have until April 15 to fund the prior year.

9. Write Off Uncollectible Receivables

Accrual-basis businesses can deduct bad debts in the year they become genuinely uncollectible. Cash-basis businesses cannot — you never recognized the income. Year-end is the time to assess which outstanding invoices are realistically uncollectable.

10. Book a Tax Planning Consultation

SK Financial offers year-end planning consultations throughout November and December. Every situation is different — entity type, state of operation, income level, and retirement goals all affect which moves make sense for you specifically.