Year-End Tax Checklist

Let’s walk through a timeless year-end tax checklist that works for any tax year! Focused on what small businesses and ministries should do before December 31.

We’ll cover:

1. A simple calendar of key deadlines & documents

2. High-impact moves to consider before year-end

3. Common mistakes and where to get help

Quick note: This is general education for U.S. federal taxes. Always talk with your own tax professional about your exact situation.

1. Your Year-End Tax Calendar (Big Picture)

Even though the tax return is filed next year, many key actions (and some deadlines) are tied to Dec. 31 and the first few months of the new year.

A. What must be done by Dec. 31 (or earlier)?

These items typically must be done no later than Dec. 31 of the tax year to count for that year’s taxes:

1. Make deductible purchases & payments

   • Ordinary business expenses (supplies, software, repairs, marketing, etc.)

   • Charitable contributions (for ministries, this is more about donor support & receipting; for businesses, it’s limited and must meet IRS rules)

   • State/local taxes (within deduction limits)

2. Place new business assets in service

   • Equipment, vehicles, computers, furniture, etc. often must be placed in service (actually usable) by Dec. 31 to qualify for Section 179 or bonus depreciation in that year.

3. Employee bonuses & payroll adjustments

   • Year-end bonuses generally need to be paid (or at least properly accrued, depending on your accounting method and entity type) by year-end to be deductible.

   • Double-check that ministry housing allowances and other special arrangements are documented properly before the year rolls over.

4. Retirement plans that must be set up by year-end

   • Some plans (like Solo 401(k) or regular 401(k)) generally must be established by Dec. 31 of the plan year, even if contributions are funded later.

   • Other plans (like a SEP IRA) can be set up and funded by the tax filing date, but you still want a year-end game plan.

5. Bookkeeping clean-up and year-end close prep

   • Reconcile bank and credit card accounts through at least November (and ideally December once statements are available) as soon as possible.

   • Review accounts receivable (unpaid invoices) and accounts payable (bills you owe).

   • Identify bad debts you realistically won’t collect, and talk with your tax pro about properly writing them off (assuming you are accrual basis).

B. Key early-next-year deadlines to plan for

These aren’t strictly “year-end,” but you need to prep for them before Dec. 31 so you’re not scrambling.

Common U.S. federal deadlines (dates can shift if they fall on weekends/holidays; check each year):

• By January 31 (following year)

  • File and send Form W-2 to employees.

  • Send Form 1099-NEC to non-employee workers (contractors) and e-file with the IRS.

  • Send certain 1099-MISC forms where required.

Prepare now by:

1. Verifying who needs a W-2 or 1099

   • Employees vs. independent contractors

   • Vendors paid by check/ACH vs. via third-party platforms (some 1099s are handled differently or not required).

2. Making sure you have W-9 forms for all 1099-eligible contractors.

3. Confirming access to your payroll provider and e-file accounts (IRS, state, etc.).

2. High-Impact Year-End Tax Moves (For Small Businesses)

Now let’s hit the “levers” that actually move your tax bill.

A. Accelerate deductions (strategically)

For many small businesses, accelerating deductions into the current year can reduce taxable income.

Examples:

1. Prepay certain expenses

   • Rent, insurance, subscriptions, or other ordinary and necessary business costs (within IRS rules and your accounting method).

   • Might consider prepaying facility costs, conference fees, or resource materials (cash basis).

2. Stock up on supplies

   • Office supplies, packaging, small equipment, or resources you know you’ll use soon.

3. Repair vs. improve

   • Repairs (fixing something broken) are often immediately deductible.

   • Improvements (better than original condition) may need to be capitalized and depreciated.

   • This line can be tricky, a great place to involve your CPA.

Cash flow warning: Never spend $1 to “save taxes” if it only saves you 24–30 cents. Tax planning should support your mission and profitability, not undermine it.

What you can do next

Review your budget and ask: What expenses are we definitely going to incur early next year that we could reasonably pay now without hurting cash flow?

B. Retirement contributions

Retirement plans can be a huge tax planning tool for owners, key staff, and sometimes employees at large.

Common situations:

1. Solo 401(k) for one-owner businesses (sometimes with spouse)

   • Often allows both employee deferrals and employer contributions, creating more room for tax-favored saving.

   • Typically must be set up by Dec. 31, but contributions can often be funded by the filing deadline (sometimes including extensions).

2. SEP IRA

   • Flexible for owner and eligible employees; usually can be set up and funded by the tax filing date.

   • Works well for profitable businesses that want to decide later in the year how much to contribute.

3. Simple IRA or traditional 401(k) plans

   • These have their own setup and contribution deadlines, and specific employer match formulas.

4. For ministers

   • Consider 403(b) or 401(k) plans, or other church-specific retirement options.

   • Ministers also have unique rules for housing allowance and SECA (self-employment) taxes, so retirement planning should be integrated carefully with those.

C. Timing of bonuses and compensation

Bonuses are a great incentive tool and also a tax planning lever.

Key considerations:

1. When to pay

   • Paying bonuses in December can increase deductions in the current year.

   • Paying in January may improve cash flow this year but push deductions to next year.

2. Entity type matters

   • For S-corps, reasonable wages to owner-employees are a big hot-button issue. Bonuses may help support that “reasonable compensation” standard.

   • For ministries, be mindful of private inurement and reasonable compensation rules. No one should be improperly benefiting from the nonprofit, and keep in mind that any additional wages will increase the taxable income reported on your W-2 and, in turn, your personal tax bill.

3. Withholding & reporting

   • Make sure your payroll system is set up to handle withholding and payroll taxes correctly on bonuses.

   • Ministers often have special treatment (e.g., subject to income tax withholding but not FICA in some structures); this requires careful handling.

D. Asset purchases & depreciation (vehicles, equipment, tech)

Buying “big stuff” near year-end can significantly affect your taxes, but it has to make business sense first.

Examples:

• Computers, cameras, sound systems, office furniture

• Vehicles used for business/ministry

• Machinery, tools, or other operational assets

Things to think about:

1. Placed in service

   • The asset typically must be in use by Dec. 31, not just ordered or sitting in a box.

2. Section 179 and bonus depreciation

   • These provisions can allow large upfront deductions subject to various limitations and phase-outs.

   • Rules and percentages can change over time, so always confirm current law with your advisor.

3. Business vs. personal use

   • If an asset (especially a vehicle) has personal use, you’ll need proper documentation and may not be able to write off 100%. In many cases, if the vehicle has a split purpose, it is often better to purchase it personally and then use an accountable plan for the business portion.

3. Common Year-End Mistakes (and How to Avoid Them)

Mistake #1: Treating year-end planning as just “saving tax”

Taxes matter, but cash flow and mission matter more.

Avoid:

• Buying unnecessary equipment just to “get a write-off.”

• Draining cash reserves for tax purposes while putting your organization at risk.

Better approach: Start with your strategic plan & budget, then use tax planning to optimize around that.

Mistake #2: Ignoring entity-specific rules

Different entities have different quirks:

1. Sole proprietor / single-member LLC

   • Business income flows to your personal return (Schedule C).

   • Self-employment tax can be significant — retirement contributions and shifting to an S-corp (if appropriate) can be powerful tools.

2. S-corp / partnership / multi-member LLC

   • K-1s, basis tracking, reasonable compensation (for S-corps), guaranteed payments (for partnerships); the details really matter.

3. C-corp

   • Potential double taxation if profits are distributed as dividends.

   • Different planning around salaries, bonuses, and fringe benefits.

4. Churches and ministries (501(c)(3) organizations)

   • Need to watch unrelated business income (UBI).

   • Compensation and benefits must be reasonable and properly documented.

   • Housing allowances for qualifying ministers must be designated in advance, usually before the start of the year.

Misunderstanding these can lead to penalties, lost deductions, or even jeopardized tax-exempt status for ministries.

Mistake #3: Poor recordkeeping

If your books are messy, tax prep is painful and planning loses power.

Common issues:

• Commingling personal and business/ministry funds

• Missing or incomplete documentation for expenses and donations

• No backup for mileage, travel, or large purchases

• Out-of-date donor records and lack of proper contribution receipts (for ministries)

Good news: If you’re not ready to hire a bookkeeper, you can use our Free DIY Bookkeeping Template (available at the bottom of our pricing page) to build a simple, consistent system that dramatically improves clarity.

Mistake #4: Waiting until tax season to ask for help

By January or February, many year-end planning opportunities are gone. All that’s left is reporting what already happened.

Year-end is the ideal time to:

• Run “what-if” projections

• Adjust estimated tax payments

• Decide on bonuses, asset purchases, and contributions

• Confirm that your ministry compensation and housing allowances are structured correctly

4. Where to Get Help

You don’t have to do this alone, and honestly, you probably shouldn’t.

Consider working with:

1. A CPA who understands:

   • Small businesses and self-employed owners

   • Nonprofit and ministry rules (if you run a church or ministry)

2. A bookkeeper to keep things clean all year

3. A retirement plan advisor to help design and manage 401(k)/403(b)/IRA plans

When you meet with a professional for year-end planning, bring:

• Year-to-date profit & loss and balance sheet

• A list of big events this year (new locations, staff changes, big purchases)

• Questions about planned purchases, hiring, or new programs for next year

• Then explain the core operations of your business. Many experts will have industry-specific plans that can be implemented.

Key Takeaways

1. Dec. 31 is more than “just another day.” Many key actions (asset purchases, bonuses, retirement plan setup, donations) must be decided before then to affect this year’s taxes.

2. Plan around your mission and cash flow first. Taxes are important, but they’re not the ultimate goal.

3. High-impact levers include accelerating deductions wisely, using retirement plans strategically, and timing bonuses and big purchases.

4. Avoid common traps: last-minute spending, ignoring entity-specific rules, sloppy records, and waiting until tax season to seek help.

5. Proactive planning with a knowledgeable advisor can save money, reduce stress, and keep your ministry or business focused on what it’s called to do.

If you have questions about anything in this checklist or want help applying it to your specific small business or ministry, you can email: contact@sotecpa.com. This blog is intentionally kept surface level so it can apply broadly, and there are many additional planning options that are best discussed over a call. Please reach out if you would like to explore what fits your specific situation.