Have you ever opened a surprise tax bill in April and wondered what you could have done differently?
Are you scrambling every December trying to make last-minute tax moves while juggling holiday chaos, customer demands, and family time?
Year-end tax planning doesn't have to feel like a frantic scramble. But it does require starting earlier than most business owners think and understanding which moves actually matter.
At Patrick Accounting, we've guided hundreds of service-based business owners through Q4 planning, helping them avoid costly mistakes and feel confident heading into the new year.
In this article, you'll get a clear October-December action plan so you can avoid tax surprises and make strategic moves before it's too late. You'll learn when to start planning, what equipment purchases actually make sense, how to time your expenses, and what documents to gather now before the holiday chaos begins.
Why You Shouldn't Wait Until October to Plan for Taxes
If you're reading this in October and just now thinking about year-end tax planning, you're in good company. This is when most business owners finally start thinking about taxes.
The problem is that by October, many of your best tax-saving opportunities have already passed.
Proactive tax planning should start in January, not October. Businesses that pay the least in taxes (legally) are the ones making strategic moves throughout the year, not scrambling in Q4.
Even so, October isn't too late to make moves. It's just later than ideal.
If you're reading this now, you still have time to make strategic equipment purchases, adjust retirement contributions, time expenses strategically, gather critical documents, set bonuses appropriately, and plan for next year.
The key is acting now, not waiting until mid-December when your options become extremely limited.
4 Steps To Make Year-End Tax Planning Less Stressful
- Start with a projection. Where are you year-to-date versus where you expected to be? This matters because your tax liability is directly tied to your profitability.
- Identify gaps. Have you set aside enough money for taxes? Are you on track with retirement contributions? Did you fund your HSA?
- Make final moves. This might include timing equipment purchases, prepaying certain expenses, or making last-minute retirement contributions.
- Look ahead to next year. Good year-end planning isn't just about this year. It's about setting yourself up for success next year so you're not in the same scrambling position 12 months from now.
Should You Buy Equipment Just to Lower Your Taxes?
Buying equipment is the most common (and most misunderstood) year-end tax strategy. You've probably heard some version of this advice: "Go spend money to lower your taxes!"
Here's why that's terrible advice: You're still spending the money.
If you buy a $60,000 truck just to get a tax deduction, you're not really "saving" money. You've spent $60,000 to potentially save $15,000-$20,000 in taxes. You're still out $40,000-$45,000.
That's not tax planning. You're just buying stuff you might not need.
How to Know If a Year-End Equipment Purchase Makes Sense
Strategic equipment purchases can be smart year-end moves if they meet specific criteria:
- You were planning to buy it anyway. If you knew you'd need new equipment in January or February, moving that purchase into December might make sense from a tax timing perspective.
- You can acquire it and place it in service before December 31. For most tax benefits, the equipment needs to be operational and ready to use by year-end.
- It's something your business genuinely needs. The equipment should support revenue generation, improve efficiency, or replace aging equipment.
We have an optometrist client who's mastered this approach. Every year, we discuss what equipment he's planning to upgrade. We look at his options, discuss the timing, and make sure any purchases happen before year-end if it makes sense from both an operational and tax perspective.
When you make a qualifying equipment purchase, you may be able to take advantage of bonus depreciation, which allows you to write off a significant portion (or potentially all) of the equipment cost in the first year.
Key takeaway:
Don't buy something you don't need just to lower your tax bill.
But if you DO need it, timing matters.
Should I Prepay Business Expenses Before Year-End?
If your business uses cash-basis accounting (which most small service businesses do), you get a tax deduction when you pay an expense, not when you incur it. This creates opportunities for strategic timing.
Expenses You Might Want to Accelerate Into This Year
Consider paying these expenses before December 31 if you're looking to reduce this year's taxable income:
- Insurance premiums (if your renewal falls in January, consider prepaying in December)
- Marketing costs (planning a big Q1 push? Prepay some expenses now)
- Equipment maintenance (scheduled for January? Move it up)
- Professional services (annual retainers or subscriptions you'd pay anyway)
When to Hold Back
If you had an unexpectedly down year and expect to be more profitable next year, you might consider deferring payment of certain bills until January. This way, you take the deduction when you're in a higher tax bracket and it's worth more.
A $1,000 deduction might not sound like much, but why leave money on the table? When you're looking at multiple expenses across your business, these strategic timing decisions can add up to meaningful tax savings.
Are You Missing Out on Retirement and HSA Tax Deductions?
One of the biggest missed opportunities we see is with retirement contributions and Health Savings Account (HSA) funding.
During year-end planning meetings, we always ask: "Are you on track to max out your retirement contributions?" You'd be surprised how often the answer is "I don't know" or "Probably not."
Depending on your retirement plan type, you may be able to make substantial tax-deductible contributions to a 401(k), Solo 401(k), SEP IRA, or SIMPLE IRA. The specific contribution limits vary by plan type and are adjusted annually.
These contributions reduce your taxable income dollar-for-dollar, which can result in significant tax savings depending on your tax bracket.
If you have a high-deductible health plan, don't forget your HSA. HSA contributions are tax-deductible, grow tax-free, and can be withdrawn tax-free for qualified medical expenses, making them one of the most tax-advantaged accounts available.
The Deadlines That Matter
Some retirement contributions can be made after year-end (up until your tax filing deadline), while others must be made by December 31. This is why having this conversation NOW matters. If you need to adjust your payroll to maximize your 401(k) contributions, you need to do it in your remaining paychecks for the current year. You can't contribute retroactively.
What Tax Documents Should You Gather Before December 31?
Overlooking the administrative side of year-end tax planning is one of the quickest ways to turn January through April into a stressful mess.
Start gathering these documents now:
- W-9s from all contractors. If you've paid any contractor $600 or more during the year, you need to file a 1099 by January 31. Don't wait until December 26 to start chasing these down.
- Insurance policy information. You'll need to report certain insurance information, including workers' compensation coverage, health insurance premiums, and business insurance policies.
- Mileage logs. If you haven't been tracking your business mileage, now's the time to reconstruct what you can. The IRS mileage allowance can add up to significant deductions.
- Owner health insurance premiums. If you're self-employed and paying for your own health insurance, those premiums may be deductible.
- Personal use of business vehicles. If your business owns a vehicle you also use personally, you need to track and report that personal use.
- Receivables to write off. If you're on accrual-basis accounting, review your accounts receivable. Are there outstanding invoices you're never going to collect? Writing them off before year-end removes them from your taxable income.
Gathering documents in October beats chasing them down over the holidays.
How Should You Handle Bonuses and Owner Pay at Year-End?
Many businesses think about bonuses at year-end, and these decisions have significant tax implications.
If you're planning employee bonuses, timing matters. Bonuses paid in December are deductible on this year's tax return. Bonuses paid in January are deductible on next year's tax return.
If you're an S-Corp owner, the IRS requires that you pay yourself a reasonable salary before taking profit distributions, so planning that mix before year-end affects your tax liability.
These decisions need to be made before December payroll runs. Once the year closes, your options become much more limited.
The Consequences of Not Planning for Taxes Until October
Unfortunately, we regularly see new clients come to us in October or November, and when we ask, "Have you been setting aside money for taxes?" the answer is often "Well, not really."
Now they're facing what we call the double whammy: They need to find $50,000 for this year's tax bill, PLUS they need to start planning and saving for next year's taxes.
That's $100,000 in tax planning in a very short window. It's stressful, it strains cash flow, and it's completely avoidable.
If you're in this position:
- Get an accurate projection.
- Create a plan to cover it.
- And set up systems so you're never behind again.
This means setting aside a percentage of every deposit into a tax savings account or making quarterly estimated tax payments.
Playing catch-up means finding $50K for this year while also planning to save $50K for next year. That's the double whammy nobody wants.
October Tax Planning Checklist for Business Owners
Here's exactly what you should do right now:
- Schedule your year-end planning meeting with your accountant.
- Review your year-to-date profit and loss statement.
- Calculate your current tax projection.
- List any equipment purchases you're planning for early next year.
- Start gathering W-9s from all contractors.
- Check your retirement and HSA contribution status.
- Review (or reconstruct) your mileage log.
- Identify any receivables that should be written off.
You don't have to do everything at once. But starting now (in October) gives you time to execute thoughtfully rather than reactively.
How to Move from Scrambling to Strategic Tax Planning
After years of seeing business owners scramble through Q4, we can tell you this: The businesses that pay the least in taxes (legally) aren't waiting until October to figure it out. They're planning in January, checking in midyear, and adjusting intentionally in Q4.
Now, you have a clear October-December roadmap for avoiding tax surprises and making confident, strategic moves.
At Patrick Accounting, we've helped hundreds of service-based business owners move from last-minute chaos to year-round clarity. If you're tired of tax season stress and want a proactive partner, see Who’s a Good Fit for Patrick Accounting.
And then...
Your most tax-efficient year yet starts with what you do today.
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