Year-End Tax Moves for Small Business Owners

Every December, the same conversation happens in thousands of small businesses. Profit came in higher than expected, the tax bill looks ugly, and someone says, "Let's just buy the new truck before the year ends and write it off." Two weeks later the truck is in the lot, and nobody has done the math on what it actually saved.

This year that conversation matters more than usual. The year-end tax moves for small business owners changed shape after last summer's tax law: 100% bonus depreciation is back for good, the Section 179 limit more than doubled, and the 1099 filing threshold jumps from $600 to $2,000. Some moves got bigger. A few common ones got worse.

You have until December 31 for most of them. Here is what each one is really worth, with the numbers, and the one calculation to run before you spend a dollar to save a dime.

What Changed for Year-End Tax Moves This Year

The tax law signed in July 2025 rewrote several rules small businesses use every December. The IRS summary of the business provisions lists the big ones:

• 100% bonus depreciation, permanently. It had been phasing down by 20 points a year and would have been 20% now. The law restored the full write-off for qualifying property acquired after January 19, 2025, with no end date.
• Section 179 expensing up to $2.5 million, phasing out once you place more than $4 million of equipment in service in a year. Both figures are now indexed for inflation, which puts this year's limit at about $2.56 million.
• U.S. research costs are deductible again in the year you pay them, instead of being spread over five years. If you pay developers or engineers to build products, this one alone can swing your tax bill by tens of thousands.
• The 20% qualified business income deduction is permanent. It had been set to expire after 2025.

For most owners, the first two items are the reason a December purchase is suddenly so tempting. They are also why you should slow down.

Worked Example: What a $40,000 Purchase Really Saves

Say you run a landscaping business as a sole proprietor. Your net profit this year is $180,000, you file jointly, and your top federal bracket is 24%. You are eyeing a $40,000 compact track loader.

If you buy it and put it to work before December 31, you can deduct the full $40,000 this year. Here is what that does:

1. Federal income tax: $40,000 × 24% = $9,600 saved.
2. Self-employment tax: the deduction also lowers your self-employment income. At 15.3% on 92.35% of the amount, that is about $5,650 saved, because your profit sits below this year's $184,500 Social Security wage base.
3. The QBI cost: your 20% qualified business income deduction shrinks by 20% of $40,000, which is $8,000. At 24%, that gives back about $1,920.

Net federal saving: about $13,330. State tax adds a bit more. The loader still costs you roughly $26,700 out of pocket.

That is a great deal if you needed the loader anyway and would have bought it in March. It is a bad deal if you would not have bought it at all. Spending $40,000 to save $13,330 is losing $26,700.

It is a timing deduction, not a free one

Expensing pulls the whole deduction into this year, so you get no depreciation on that loader in future years. If you sell it later, the gain gets taxed as ordinary income under the recapture rules. And if next year is your big year, you may have burned a deduction worth more later. Before buying, use our guide to spotting tariff costs in supplier invoices to check whether the equipment price you are quoted already carries an import surcharge that could fall.

Four Moves That Cost Nothing Extra

The best year-end moves do not require new spending. They change when money moves, not how much.

1. Shift income and expenses if you use cash accounting

Most small businesses report on the cash basis, so income counts when you receive it and expenses count when you pay them. That gives you two levers in the last two weeks of December.

• Send late-December invoices on January 1 if you expect the same or a lower bracket next year. A $15,000 invoice paid in January moves $15,000 of income into next year.
• Prepay expenses up to 12 months ahead. Under the IRS 12-month rule, rent, insurance, or software paid in December for coverage that ends within 12 months is generally deductible now.

If you bill with our free invoice generator, set the invoice date deliberately. The date the client pays is what counts for a cash-basis business, but a January-dated invoice makes the intent clear in your records.

2. Use the $2,500 de minimis rule for small purchases

The IRS de minimis safe harbor lets most small businesses deduct any item costing $2,500 or less per invoice or item, instead of depreciating it. Laptops, phones, a new printer, office chairs. No Section 179 form needed. You make the election with your tax return, so keep the receipts tidy.

3. Clean up your contractor records now

The 1099-NEC threshold rises to $2,000 for payments you make this year, according to the law's information reporting changes. A web designer you paid $1,200 no longer needs a form. One you paid $2,400 still does, by January 31. Collect missing W-9 forms in December, when contractors still answer email, not in late January.

The 1099-K rules for payment apps changed too. Platforms like PayPal and Venmo now report only when a seller tops $20,000 and 200 transactions. Your income is still taxable below that line. You just will not get the form to remind you.

4. Pay yourself into a retirement plan

Retirement contributions are the cleanest deduction available, because the money stays yours. For this year:

• Solo 401(k): up to $24,500 as an employee deferral, plus an employer contribution, with a combined cap of $72,000 before catch-up contributions. Plan deadlines vary, so set it up before December 31 to keep every option.
• SEP-IRA: up to 25% of compensation, capped at $72,000. You can open and fund one until your filing deadline, including extensions.

The figures come from the IRS cost-of-living limits table. If you also have a W-2 job with a 401(k), the employee deferral limit is shared across both plans. Higher earners should read how the new 401(k) catch-up rule for $150K earners changes the math on catch-up money.

The One Question to Ask Before Every December Purchase

Every year-end move falls into one of two buckets. Either it changes when you pay tax, or it changes whether you spend money. Only the first bucket is a tax strategy.

So ask one question before each December purchase: would I buy this in February at the same price? If yes, buy it now and take the deduction. If no, the tax savings are a discount on something you did not need, and a 33% discount still leaves you paying 67%.

A few more checks before you commit:

• Placed in service means working. Equipment sitting in a crate on December 31 does not qualify. It has to be ready and available for use in the business.
• Cash still matters. Draining the operating account for a deduction can leave you short in January, when estimated taxes, payroll taxes, and annual software renewals all land at once.
• Financing works. A loader bought with a loan is fully deductible this year even though you have barely paid for it. That can help cash flow, but run the interest cost against the tax saving.

Frequently Asked Questions

Can I write off equipment bought in December?

Yes, if it is placed in service, meaning set up and ready to use in the business, by December 31. With 100% bonus depreciation or Section 179, the full cost can generally be deducted this year.

What is the Section 179 limit this year?

The base limit is $2.5 million, phasing out after $4 million of equipment is placed in service in a year. With inflation indexing, this year's figures are about $2.56 million and $4.09 million.

Do I need to send a 1099 for a contractor I paid $1,500?

Not for payments made this year. The Form 1099-NEC threshold rose from $600 to $2,000 under the new law, starting with payments made this year. Anyone you paid $2,000 or more still needs a form by January 31.

What is the last day to make a SEP-IRA contribution?

Your tax filing deadline for the year, including extensions. That makes the SEP-IRA one of the few deductions you can still take after December 31, once you know your final profit.

Run the Numbers Before the Holidays

The new rules made the December write-off bigger, and that is exactly why it is easy to overspend. Start with the free moves: invoice timing, prepaid expenses, the de minimis rule, and contractor paperwork. Then decide on a retirement contribution, which saves tax without spending a cent on anything else.

Only after that should you price equipment, and only equipment you would buy anyway. Book an hour with your accountant before mid-December, bring this year's profit and loss, and ask for the after-tax cost of each purchase in dollars. A deduction you can measure is a decision. One you cannot measure is a guess with a receipt.

Disclaimer: This article is for general informational purposes only and does not constitute tax, legal, or financial advice. Tax outcomes depend on your specific situation. Always consult a qualified tax professional before making decisions based on this information.