As the end of 2026 approaches, it's crucial for self-employed individuals and small business owners to take advantage of key tax strategies before the year wraps up. This episode breaks down seven essential tax moves to consider, from optimizing business expenses and income timing, to maximizing deductions through plans like the solo 401(k) and SEP IRA. The discussion explores home office deductions, the importance of making quarterly estimated tax payments, and how to leverage the Section 199A deduction for small businesses. Tune in for actionable advice on managing your business finances and setting yourself up for a successful, tax-savvy retirement.
You will want to hear this episode if you are interested in...
[00:00] Managing business expenses for taxes
[03:11] Business tax deductions and income deferral
[07:52] Maximizing retirement contributions
[10:42] Roth IRA vs 401k options
[15:03] Home office deductions and taxes
[17:22] Paying quarterly estimated taxes
End of Year Tax Tasks
As the year draws to a close, it's time to review and implement key strategies to ensure you’re minimizing your tax liability and setting yourself up for a secure financial future. Below are some essential steps you should consider before December 31st, 2026 to make the most of available tax planning opportunities.
Manage and Maximize Your Business Expenses
Profit is ultimately determined by subtracting business expenses from revenue, so it’s important to intentionally manage expenses, especially for those using a cash basis accounting method. By accelerating legitimate business purchases—such as prepaying for annual software subscriptions or IT support instead of monthly payments—you can increase deductible expenses for the current year and reduce taxable income.
Time Your Business Income
By postponing sending your invoices or receiving certain payments until after January 1st, you can shift that income to the following tax year, and potentially lower your current year’s tax liability. This method only works with cash-basis accounting and must be executed properly, delaying payment requests or negotiating with clients to pay after the new year is legitimate, whereas simply holding a received check is not sufficient.
Leverage the Qualified Business Income Deduction (Section 199A)
Section 199A deduction, is a potentially valuable opportunity for small business owners. This deduction can allow you to deduct up to 20% of qualified business income. For example, with $200,000 in qualified income, up to $40,000 could be deducted. However, eligibility limitations—especially for specialized service businesses like law, finance, or healthcare—and income thresholds above which the deduction may phase out. Careful year-end planning can help you qualify or maximize this benefit.
Maximize Retirement Contributions with a Solo 401(k)
The solo 401(k), is ideal for self-employed individuals or business owners without qualifying employees. You can contribute both as employee (salary deferral) and employer (profit sharing), potentially deferring up to $80,000 if you’re over 50, or $72,000 if under 50, based on 2026 limits. You need to set up the plan by December 31st, making this a critical year-end task. Contribution options include both pre-tax and Roth (after-tax) choices, depending on future tax expectations.
Consider a SEP IRA for Simpler Setup
If the reporting requirements or setup deadlines for a solo 401(k) feel overwhelming, a SEP IRA provides a simpler alternative. While you can only contribute based on a percentage of net business profit, a SEP IRA can be established up until your tax filing deadline, including extensions. This option doesn’t allow for salary deferrals or plan loans, but it’s easier to administer and may suit those who miss the year-end window for 401(k)s.
Claim Your Home Office Deduction
The home office deduction, remains an underutilized tax benefit for freelancers, contractors, and business owners working from home. To qualify, you must use an area in your home regularly and exclusively for business purposes. There are two options for calculating the deduction: a simplified method using $5 per square foot (up to 300 square feet), or the regular method based on a percentage of home expenses like mortgage interest, rent, utilities, and insurance. Choosing the right method depends on your space and record-keeping preferences.
Don’t Overlook Quarterly Estimated Tax Payments
Make your quarterly estimated tax payments to avoid underpayment penalties. Since taxes are not withheld from business income, you must proactively calculate and pay estimated taxes four times a year—April 15th, June 15th, September 15th, and January 15th. The required payment is typically 100% of last year’s tax liability (or 110% for higher incomes), or 90% of the current year’s tax due. Keeping up with these payments ensures you stay compliant and penalty-free.