As we approach the end of the year, it's important for self-employed individuals and small business owners to take a close look at their tax situation.
If you run a small business, work for yourself, or even have self-employed income in addition to your regular job, there may be several tax-planning opportunities worth considering before December 31.
For small business owners, taxes aren't just something you deal with when you file your return in the spring. Tax planning is a year-round activity.
Some of the most valuable tax-planning opportunities have year-end deadlines, while others can be addressed after the year is over but before you file your tax return.
In this article, I'll cover seven tax moves you should consider making to potentially lower your 2026 tax bill and better prepare for tax season.
Here are the seven strategies we'll discuss:
Manage your business expenses.
Consider the timing of your business income.
Understand the Section 199A qualified business income deduction.
Set up or contribute to a Solo 401(k) and profit-sharing plan.
Consider a SEP IRA.
Determine whether you qualify for a home office deduction.
Make sure you're paying quarterly estimated taxes.
Let's take a closer look at each one.
1. Manage Your Business Expenses Before Year-End
One of the most straightforward ways to potentially lower your business's taxable income is to review your business expenses before the end of the year.
Remember, your business profit is generally calculated by taking your business revenue and subtracting your business expenses.
For many businesses, accounting is done on what's known as a cash basis. This means income and expenses are generally recorded when the money is received or paid.
If you've had a particularly strong year financially, you may want to consider whether there are legitimate business expenses you can pay before December 31.
For example, perhaps you've been paying monthly subscriptions for IT support or business software.
Instead of continuing to pay those expenses monthly, you might consider switching to an annual payment and prepaying for the following year before the end of 2026.
That could potentially allow you to deduct more expenses in 2026 and reduce your taxable business income.
Other purchases you might consider include:
Computers and other business technology.
Office furniture.
Office supplies.
Large office equipment.
Other items your business needs to operate.
Of course, you shouldn't purchase things you don't need simply to create a tax deduction. But if you already know your business needs a new computer, office furniture, or other equipment, the timing of that purchase may be worth considering.
Don't Overlook Section 179 Depreciation
There may also be additional deductions available for larger business equipment and assets.
Section 179 depreciation is one area worth exploring.
Rather than depreciating certain business assets over time, Section 179 may allow qualifying purchases to be deducted in the year they're placed into service.
If you're considering purchasing larger equipment for your business, it's worth looking into whether those purchases qualify.
The important thing is to understand which expenses and purchases are eligible and how they affect your tax situation.
2. Consider the Timing of Your Business Income
The second tax move involves looking at when your business income is received.
Just as business expenses can affect your taxable profit, the timing of your business income can also make a difference.
If 2026 has been an especially profitable year, you may want to consider whether some income can legitimately be received in 2027 instead.
For example, if you have invoices that you would normally send to clients in December, you might consider delaying those invoices until January 1.
You could also speak with clients about whether they can make payments in January rather than December.
For businesses operating on a cash basis, the timing of when income is actually received is generally important for determining when it's taxable.
However, you can't simply hold onto a check you received in December and decide not to cash it until January.
The idea is to manage the timing of when you request and receive payment, not to delay reporting income you've already received.
This strategy may be worth considering if you expect your income to be lower in 2027 than it was in 2026.
The goal is to manage the timing of legitimate business income and expenses in a way that may help reduce your overall tax burden.
3. Take Advantage of the Section 199A Qualified Business Income Deduction
The third strategy involves something known as the Section 199A deduction, also called the qualified business income deduction or QBI deduction.
Many small business owners may qualify for this additional deduction on their business income.
The deduction can potentially allow you to deduct up to 20% of qualifying business income.
For example, let's say your business earns $200,000 in 2026.
If you qualify for the full 20% deduction, that could mean an additional $40,000 deduction on your tax return.
That's a substantial potential tax benefit.
Not Every Business Qualifies
There are restrictions on who can take advantage of this deduction.
Certain specialized service businesses face additional limitations. These may include:
Law practices.
Accounting businesses.
Consulting businesses.
Health businesses.
Financial services businesses.
Even if you're in one of these industries, you may still qualify, but additional restrictions could apply.
Pay Attention to Your Income
Another important consideration is how your business income affects your eligibility for the QBI deduction.
As we discussed earlier, some of the strategies that reduce your business income, such as increasing legitimate business expenses or making retirement plan contributions, can also affect how much of a qualified business income deduction you may receive.
There are income thresholds that can affect whether the deduction is available or whether it begins to phase out.
That's why it's important to look at your overall income and determine whether you'll qualify.
You don't want to focus on one tax deduction without considering how it affects other deductions and tax-planning opportunities.
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4. Set Up a Solo 401(k) and Profit-Sharing Plan
For many self-employed individuals, one of the biggest tax-planning opportunities is contributing to a Solo 401(k) with a profit-sharing component.
A Solo 401(k) is a retirement plan designed for self-employed individuals and qualifying business owners.
One of the advantages is that you can contribute in two different capacities:
As the employee, through salary deferrals.
As the employer, through profit-sharing contributions.
This creates an opportunity to contribute significantly more than you might be able to contribute through other retirement plan arrangements.
Employee Salary Contributions
For 2026, the employee salary contribution limit discussed in this episode is:
Under age 50: Up to $24,500.
Age 50 and older: An additional $8,000 catch-up contribution, for a total of $32,500.
If you make these contributions on a pre-tax basis, they can reduce your taxable income.
For example, if you're over 50 and contribute the full $32,500 on a pre-tax basis, that amount can potentially be deducted from your business income.
Depending on your business income, you may be able to contribute up to 100% of your eligible compensation through the employee salary contribution.
Add an Employer Profit-Sharing Contribution
You may also be eligible to make an additional employer profit-sharing contribution.
For a sole proprietor or single-member LLC, the contribution discussed in this episode can be up to 20% of business profit.
For S corporations and C corporations, the contribution can be up to 25% of compensation.
This contribution is in addition to the employee salary deferral.
When you combine the two, the total potential contribution limits discussed in the episode are:
Business ownerMaximum contribution discussedUnder age 50$72,000Age 50 and older$80,000
These amounts are subject to the applicable plan and compensation limitations.
For example, if you have $200,000 in business income and you're over 50, you may be able to contribute up to $32,500 through employee salary deferrals and potentially make an additional profit-sharing contribution.
The total amount you can contribute depends on your business structure, compensation, and applicable plan rules.
The episode also discusses a maximum compensation amount of $360,000 when calculating the contribution limits.
Why the Solo 401(k) Can Be So Valuable
If your goal is to make substantial pre-tax retirement contributions and reduce your taxable income, a Solo 401(k) with profit sharing can be one of the most valuable options available to a self-employed individual.
However, there are some important deadlines and administrative considerations.
The December 31 Deadline
One important point is that a Solo 401(k) generally needs to be established by December 31 for the year in question.
If you haven't already established one and want to use this strategy for 2026, you should look into getting the plan established before the end of the year.
You can establish a Solo 401(k) through providers such as Fidelity and Charles Schwab, along with other financial institutions.
When selecting a provider, consider:
Whether the plan has an annual fee.
The investment options available.
The overall cost of maintaining the plan.
Whether the provider offers the features you need.
Some providers offer plans with little or no setup or maintenance costs, although you'll still need to consider the investments you purchase inside the plan.
What If You Have Employees?
A Solo 401(k) is designed for a self-employed individual or a business owner who may also have a spouse working in the business.
If you have employees, the rules become more complicated.
Depending on their age, hours worked, and length of service, certain employees may need to be included in the plan.
The episode discusses employees who are age 20 or older, have worked more than 1,000 hours, and have been with the business for one year as factors to consider.
If you have employees who meet the applicable eligibility requirements, you may need to make contributions on their behalf as well.
That can create additional costs and administrative responsibilities.
Don't Forget Form 5500
Another consideration with a Solo 401(k) is the requirement to file Form 5500 in certain circumstances.
As discussed in this episode, this filing may be required when you have employees participating in the plan or when the plan balance exceeds $250,000.
Form 5500 provides information about the retirement plan, including contributions and account balances.
Although the form may sound intimidating, it is a standard filing that can be completed with assistance from a financial advisor or a third-party administrator (TPA).
You should also understand the plan document, which outlines the rules governing your 401(k).
Your plan provider may offer a standard plan document, or you may be able to obtain a customized document.
Should You Make Roth or Pre-Tax 401(k) Contributions?
Another decision is whether you want to make your Solo 401(k) contributions on a pre-tax or Roth basis.
Pre-tax contributions can reduce your taxable income today.
Roth contributions are made with after-tax money, so they don't provide the same current-year tax deduction.
You can also consider a combination of pre-tax and Roth contributions.
The right choice depends on your goals.
If you believe you'll be in a lower tax bracket during retirement, pre-tax contributions may be attractive because you receive the deduction today and pay taxes when the money is withdrawn.
If you want to build up Roth retirement savings, after-tax Roth contributions may be worth considering.
The important thing is to decide which approach best fits your overall retirement and tax strategy.
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5. Consider a SEP IRA If You Want a Simpler Retirement Plan
If you missed the December 31 deadline to establish a Solo 401(k), or you simply don't want to deal with the additional complexity, another option is a SEP IRA.
A SEP IRA is a retirement plan that allows self-employed individuals and business owners to contribute a portion of their business profit toward retirement.
Unlike a Solo 401(k), a SEP IRA does not allow employee salary deferrals.
Instead, contributions are based on business profit.
As discussed in this episode, the contribution can be up to 20% of business profit for a sole proprietor or single-member LLC.
Because you can't make the additional employee salary contribution, you may need a higher level of business income to reach the same total contribution amount available through a Solo 401(k).
A Major Advantage: More Time to Establish the Plan
One advantage of a SEP IRA is that you don't necessarily need to establish it by December 31.
The episode explains that you generally have until April 15 to establish a SEP IRA.
If you file an extension, the deadline may extend to the applicable extension deadline, discussed in the episode as September 15 or October 15 depending on your business structure.
This can make the SEP IRA a useful alternative if you're doing your tax planning after the calendar year has ended.
SEP IRA vs. Solo 401(k)
There are a few important differences between these retirement plans.
FeatureSolo 401(k)SEP IRAEmployee salary deferralsYesNoEmployer contributionsYesYesEmployee contribution opportunityYesNoCan allow participant loansYes, if permitted by the planNoPlan administrationMore involvedGenerally simplerEstablishment deadline discussedDecember 31Tax filing deadline, including applicable extension
A Solo 401(k) may allow you to contribute more because you can make both employee and employer contributions.
A SEP IRA is generally easier to administer and doesn't require the same type of plan document.
If simplicity is your priority, the SEP IRA may be worth considering.
If your goal is to maximize retirement contributions and potentially reduce more taxable income, the Solo 401(k) may be the better option to evaluate.
6. Determine Whether You Qualify for a Home Office Deduction
If you're self-employed, a freelancer, or an independent contractor who works from home, you may qualify for a home office deduction.
This is another potential business expense that could reduce your taxable income.
However, there are specific requirements you need to meet.
What Qualifies as a Home Office?
To qualify for a home office deduction, you generally need to use a specific area of your home regularly and exclusively for business.
That space could be:
A dedicated room in your home.
A separate structure, such as a garage or studio.
Another qualifying area used for your business.
The space must be your principal place of business or otherwise meet the applicable requirements discussed in the episode.
For example, you generally can't simply claim your kitchen table as your home office if it's also being used for personal activities.
The space needs to be regularly and exclusively used for your business.
You also need to be conducting business there or regularly meeting with clients or customers.
This deduction may apply to self-employed individuals, sole proprietors, LLC owners, and partnerships.
Traditional W-2 employees generally don't qualify under the rules discussed in the episode.
Two Ways to Calculate Your Home Office Deduction
If you qualify, there are two methods you can use to calculate the deduction.
Option 1: The Simplified Method
The simplified method allows you to calculate your home office deduction using a rate of $5 per square foot.
The maximum space you can use for this calculation is 300 square feet.
That means the maximum deduction under this method is $1,500 for the year.
For example, if your qualifying home office is 300 square feet, you could potentially claim the full $1,500 deduction.
This is the easier approach because you don't need to calculate and track the actual percentage of your household expenses used for business.
Option 2: The Regular Method
The second option is the regular method, which involves tracking your actual household expenses.
You calculate the percentage of your home that is used for business and apply that percentage to eligible household expenses.
For example, imagine you have a home office that is 800 square feet and your house is 2,000 square feet.
Your home office represents 40% of the total square footage.
You would then calculate the applicable portion of eligible expenses associated with your home.
These may include:
Mortgage interest.
Rent.
Property taxes.
Homeowners insurance.
Utilities.
Depending on the size of your home office and your household expenses, the regular method could produce a larger deduction than the simplified method.
However, it requires more recordkeeping and calculations.
The key is to compare the two methods and determine which one is appropriate for your situation.
7. Make Sure You're Paying Your Quarterly Estimated Taxes
The final tax move is especially important for self-employed individuals and small business owners.
Are you making your quarterly estimated tax payments?
If you're self-employed, you're generally receiving income directly from clients or customers without taxes being withheld from those payments.
That means you're responsible for making sure you pay the appropriate amount of income tax throughout the year.
Quarterly estimated tax payments are payments made four times a year to the IRS for income that doesn't have taxes automatically withheld.
This can also apply to retirees and individuals who receive substantial dividend or interest income without taxes being withheld.
When Do You Need to Make Estimated Tax Payments?
As discussed in this episode, if you expect to owe more than $1,000 in federal taxes at the end of the year, you should pay attention to your estimated tax obligations.
If you work with an accountant, they can help you calculate the appropriate payments.
If you prepare your own tax return using software such as TurboTax, that software can also help you determine what you should pay.
Unfortunately, many small business owners don't manage estimated tax payments properly.
That can lead to penalties for underpaying taxes throughout the year.
The Four Estimated Tax Payment Deadlines
The quarterly estimated tax payment schedule discussed in this episode is:
PaymentDue dateFirst quarterApril 15Second quarterJune 15Third quarterSeptember 15Fourth quarterJanuary 15 of the following year
It's important to plan ahead so you don't miss these payments.
How Much Should You Pay?
There are a few ways to calculate your estimated tax payments and avoid underpayment penalties.
The episode discusses these approaches:
Pay 90% of what you expect your current year's tax liability to be.
Pay 100% of your prior year's tax liability.
Pay 110% of your prior year's tax liability if your prior-year gross income exceeded the applicable threshold discussed in the episode.
Using your prior-year tax return can often be a relatively straightforward way to determine your payments.
If you pay enough throughout the year based on the applicable safe-harbor calculation, you may avoid underpayment penalties even if you ultimately owe additional taxes when you file.
If you overpay, the excess may be refunded.
You'll use IRS Form 1040-ES to calculate and make your estimated tax payments.
If you haven't been making these payments, it's important to get back on track and understand what you need to pay.
Final Thoughts: Don't Wait Until Tax Season to Plan
If you're self-employed or own a small business, year-end tax planning can make a meaningful difference in how much you ultimately pay in taxes.
Some opportunities, such as establishing a Solo 401(k), have deadlines that arrive before December 31.
Other strategies, such as establishing a SEP IRA, may provide additional time after the calendar year ends.
The most important thing is to understand which strategies apply to your business and take action before the relevant deadlines.
Here's a quick recap of the seven tax moves:
Manage business expenses: Review legitimate business purchases and expenses that may be paid before year-end.
Manage the timing of income: Consider whether legitimate business income can be received in the following tax year.
Review the QBI deduction: Determine whether you qualify for the Section 199A qualified business income deduction.
Consider a Solo 401(k): Evaluate employee salary deferrals and employer profit-sharing contributions.
Consider a SEP IRA: Explore this alternative if you want a simpler retirement plan or missed the Solo 401(k) establishment deadline.
Review the home office deduction: Determine whether your business space qualifies and compare the simplified and regular methods.
Make estimated tax payments: Ensure you're paying enough throughout the year to avoid potential underpayment penalties.
You don't want to wait until April to start thinking about your taxes.
Take the time to review your business income, expenses, retirement contributions, and estimated tax payments before the end of the year.
And if you're unsure which strategies make sense, work with a knowledgeable financial advisor and/or accountant who can help you evaluate your options.
Have a great week—and I’ll talk to you next Tuesday.
Written by Ryan Morrissey CFP®, CLU®, CHFC®, CMFC
Founder & Principal Advisor of Morrissey Wealth Management
Host of the Retire with Ryan Podcast