5 Year-End Tax Planning Strategies for Businesses

The 2026 tax year is almost over, but you still have time to implement year-end tax planning strategies to reduce your business’s federal income tax liability. Let’s look at a few moves you may be able to make before New Year’s Day to trim your tax bill.

1. Invest in Capital Assets

If you acquire and place in service eligible new or used assets in 2026, you can benefit from the 100% first-year bonus depreciation deduction. Eligible assets include new and used machinery, equipment, certain vehicles, off-the-shelf computer software, and qualified improvement property (QIP).

Generally, bonus depreciation is automatically applied to your purchases of eligible assets placed in service during the tax year. You can elect out (which sometimes can be beneficial), but only for an entire asset class, such as all five-year assets or all seven-year assets. You can use bonus depreciation to create a net loss that you generally can carry forward to future tax years.

Another depreciation-related tax break is the Section 179 expensing election. For 2026, you can deduct up to $2.56 million of the cost of purchasing eligible new or used assets, such as equipment, furniture, off-the-shelf computer software and QIP. The deduction begins to phase out dollar-for-dollar when qualifying purchases exceed $4.09 million. It’s limited to the taxable income from your business activity, so you can’t use it to create a net loss. But you can carry forward unused amounts or apply bonus depreciation to the excess.

Also, Sec. 179 expensing isn’t automatic, and it can be applied on an asset-by-asset basis — or even to only part of an asset’s cost. This flexibility can be a planning advantage over bonus depreciation.

Consider factors such as cash flow, revenue projections, financing terms and the impact on other tax breaks before buying a pricey capital asset. The related deduction may prove more valuable later.

2. Take Advantage of the Deduction for QPP

If you’re a manufacturer and you have new construction nearing completion, finishing it before the new year could provide a 2026 deduction. Your business may qualify for a temporary depreciation deduction for the construction of qualified production property (QPP) placed in service after July 4, 2025, and before January 1, 2031. This break lets eligible businesses claim a deduction equal to 100% of the QPP’s adjusted basis in the tax year it’s placed in service. Unlike bonus depreciation, the QPP deduction requires an election.

Among other requirements, QPP generally must be nonresidential real property located in the United States and used as an integral part of a “qualified production activity.” This means that manufacturing, production or refining activities must take place within the physical space of the property. Portions used for offices, administrative services, lodging, parking, sales, research, software development, engineering or storage of finished products generally are ineligible. Additional requirements apply, including restrictions on construction dates and property use.

3. Identify Research Expenses

The Sec. 174 deduction for research and experimental (R&E) expenses and the Sec. 41 research credit (often called the “research and development” credit) aren’t limited to businesses traditionally associated with cutting-edge experimentation and innovation. So it could pay off to investigate whether you’ve incurred qualified expenses. Keep in mind that the definition of qualified expenses is generally broader under the R&E deduction than under the research credit.

Under the R&E deduction, qualified expenses include costs related to activities intended to discover information that would eliminate uncertainty about the development or improvement of a product. You can deduct such domestic expenses in the tax year they’re incurred or paid — regardless of whether the associated project has been completed — or amortize them over at least five years. Foreign qualified expenses must be amortized over 15 years.

Your deduction expenses also might qualify for the research credit, but you can’t claim both for the same expense. Generally, if you claim the credit, you must reduce your deduction by the credit amount. Or you may be able to make a Sec. 280C election, which generally will reduce the credit by the maximum corporate tax rate (21%) and let you take the full deduction. Modeling can help you determine the optimal choice.

4. Maximize Your QBI Deduction

The Sec. 199A qualified business income (QBI) deduction allows owners of sole proprietorships and pass-through entities (including partnerships, S corporations and most limited liability companies) to deduct up to 20% of their QBI. QBI is generally defined as the net amount of qualified items of income, gain, deduction and loss that are effectively connected with the conduct of a U.S. business.

The amount of the allowable 199A deduction is subject to wage and investment limitations at higher income levels, so project your taxable income now to determine whether they might apply. The One Big Beautiful Bill Act (OBBBA) expanded the phase-in ranges for those limits beginning in 2026, meaning some taxpayers will qualify for larger deductions.

For 2026, the limits generally kick in when taxable income is within the range of $201,750 to $276,750 ($403,500 to $553,500 for married couples filing jointly). If your taxable income falls in the range, the limits will partially reduce your 199A deduction to the greater of:

• 50% of W-2 wages paid to employees, or
• 25% of W-2 wages plus 2.5% of the unadjusted basis immediately after acquisition of qualified business property (for example, machinery, equipment, buildings and other depreciable property).

When taxable income exceeds the top of the range, the deduction is fully reduced to the greater of the above.

Another limit that’s phased in based on the income threshold is the 199A deduction being unavailable for income from a “specified service trade or business.” Examples include businesses that involve investment-type services and most professional practices (other than engineering and architecture).

If your projections suggest you’re close to the lower end of the phase-in range, consider measures to reduce your taxable income. You can, for example, maximize retirement plan contributions. Cash-basis businesses can defer income into 2027 and accelerate expenses into 2026.

If the limits are unavoidable, you may be able to boost your deduction by, for instance, increasing wages or purchasing qualified business property before year end. Keep in mind that such maneuvers can have additional consequences, such as higher payroll taxes.

5. Assess the Impact of the “Excess” Business Loss Limitation

Noncorporate taxpayers generally can use business losses to offset income from other sources, such as salary, self-employment income, interest, dividends and capital gains, but only up to an inflation-adjusted limit. Losses exceeding this limit generally can’t be deducted in the current year. Instead, they’re treated as net operating loss (NOL) carryforwards to subsequent tax years, generally subject to the 80% taxable income limitation on NOL deductions.

The OBBBA made this “excess” business loss limitation permanent. For 2026, the limit drops to $256,000, or $512,000 for joint filers, down from $313,000 and $626,000, respectively, for 2025. As a result, taxpayers generating substantial business losses from bonus depreciation, currently deductible research expenses or other deductions may be unable to claim the full tax benefits of those losses in 2026.

If your projected 2026 business losses are approaching or exceeding the limit, consider whether accelerating business income or deferring certain deductions could help maximize your current-year tax benefits. These strategies should be evaluated carefully because shifting income or deductions between tax years can affect future NOL deductions and overall tax liability.

Take a Proactive Approach

Year-end planning is important for any business looking to minimize income tax liability and strengthen its financial position. Implementing the right strategies can help you make the most of available deductions and credits — and avoid missed tax-saving opportunities. Need help? We can evaluate the implications of these and other potentially tax-cutting tactics.

© 2026