Year-End Tax Planning Before December 31: What Individuals and Businesses Should Review

As the end of 2026 approaches, individuals and business owners have an important opportunity to review their financial position before the tax year closes. Income changes, major purchases, business investments, retirement contributions, and estimated tax payments can all affect a taxpayer’s overall tax situation.

Some tax planning decisions must be made before December 31. Others require advance preparation or coordination with a tax professional to determine whether they make sense for the current year. Waiting until tax season may limit the available options, particularly when a decision depends on an action taken before year-end.

At Velin & Associates, Inc., we help individuals and businesses evaluate their tax positions, identify potential planning opportunities, and prepare for upcoming obligations. A year-end review can help taxpayers make informed decisions based on their circumstances rather than relying on assumptions or addressing issues after the year has ended.

1. Review Your Income and Expected Tax Liability

A year-end tax review should begin with an assessment of the year’s financial activity.

For individuals, this may include wages, bonuses, investment income, stock compensation, retirement distributions, rental income, and income from freelance or consulting work. For business owners, it may involve revenue, operating expenses, payroll, owner compensation, and projected year-end profit.

A significant change in income can affect the amount of tax owed and the usefulness of certain deductions or planning strategies. For example, someone who received a large bonus, sold an investment, or experienced substantial business growth may have a different tax position than originally anticipated.

Reviewing income before December 31 allows a tax professional to estimate the likely liability and determine whether further planning is appropriate. It can also help identify discrepancies between financial records and the information expected to appear on tax documents.

2. Evaluate Potential Deductions and Tax Credits

Many taxpayers focus on deductions only when preparing their returns. However, year-end is a useful time to review eligible expenses, charitable contributions, and other items that may affect the tax outcome.

For business owners and self-employed professionals, this may include reviewing operating expenses, contractor payments, professional services, equipment purchases, and other costs associated with running the business. Employees and other individuals may need to evaluate different opportunities based on their income, filing status, and eligibility for applicable deductions or credits.

The important distinction is that not every expense creates a deduction, and not every deduction produces the same benefit for every taxpayer. Eligibility, documentation, income limitations, and other rules can affect the result.

A professional review can help identify potential opportunities, evaluate whether the requirements are met, and avoid relying on deductions that may not be supported by the facts.

3. Consider Major Purchases and Business Investments

Businesses often make equipment purchases, technology upgrades, and other investments toward the end of the year. Depending on the asset, its business use, when it is placed in service, and the applicable tax rules, the purchase may qualify for favorable tax treatment.

However, purchasing an item solely to reduce taxes is not necessarily a sound financial decision. A deduction generally reduces taxable income; it does not eliminate the cost of the purchase.

The better approach is to evaluate planned investments alongside business needs, projected profits, and available cash. A tax professional can help determine how a proposed purchase may be treated and whether its timing could affect the current year’s tax position.

Individuals considering major financial transactions should also seek advice before proceeding when the transaction may have significant tax consequences. Selling investments, disposing of property, or exercising certain forms of equity compensation can require advance planning.

4. Check Estimated Tax Payments and Withholding

A tax bill can be larger than expected when income tax withholding or estimated payments do not keep pace with income.

This issue affects more than business owners. Individuals who receive bonuses, investment income, rental income, freelance payments, or other income without sufficient withholding may need to review their payment position.

Business owners may also need to consider how changes in profitability, payroll, and owner compensation affect their tax obligations.

A year-end projection can help compare expected tax liability with payments already made and identify whether additional action should be considered. The appropriate approach depends on the taxpayer’s circumstances, applicable payment requirements, and the timing of income throughout the year.

For many individual taxpayers, the next federal estimated tax payment is generally due January 15, 2027. That date does not eliminate the need to review earlier installments or determine whether underpayment rules may apply.

5. Review Retirement Contributions and Financial Planning Decisions

Retirement planning can be an important part of a year-end tax review. Depending on eligibility and the type of retirement arrangement, contributions may affect a taxpayer’s taxable income or long-term financial position.

Employees, self-employed professionals, and business owners may have different options and deadlines. Certain decisions—particularly those involving employer-sponsored plans, business retirement plans, or employee salary deferrals—may require action before year-end.

The appropriate strategy depends on income, existing retirement arrangements, business structure, available cash, and other financial considerations. A contribution should not be made solely for a potential tax benefit without considering the taxpayer’s broader financial needs.

A coordinated review can help determine which options may be available and which deadlines deserve attention.

6. Business Owners Should Review Entity Structure and Owner Compensation

For business owners, year-end tax planning should include a review of the current entity structure and how the business pays its owners.

A company that has grown significantly may need to reconsider whether its existing structure remains appropriate. An LLC, partnership, S corporation, or C corporation can involve different tax consequences, administrative responsibilities, and state-level obligations.

For example, an S corporation owner who performs services for the business must consider reasonable compensation and payroll requirements. An owner of a C corporation may need to evaluate how salary, distributions, and retained earnings affect the company’s and owner’s overall tax position.

These decisions are fact-specific. Changing a business structure or making an election does not automatically create tax savings, and some elections have strict deadlines.

A year-end review can help business owners assess whether their current arrangements still fit their operations and whether any changes should be evaluated for 2027.

7. Consider California and Multi-State Tax Obligations

Tax planning can become more complicated when a taxpayer lives in one state and works or operates a business in another, relocates during the year, or earns income from activities conducted across state lines.

California businesses may also face state-specific requirements depending on their entity type, income, and activities. Businesses expanding into other states may need to evaluate whether their operations create additional registration, filing, or tax obligations.

These issues are not always resolved by looking at where a company was formed or where its owners live. The nature and location of business activities, applicable state rules, and the taxpayer’s circumstances can all matter.

For businesses operating across state lines, reviewing these questions before filing season can help identify potential compliance issues and avoid surprises.

8. Organize Financial Records Before the Year Closes

Good records are essential to accurate tax reporting and effective planning.

Individuals should review income records, investment transactions, charitable contribution documentation, and other information relevant to their tax situation. Business owners should reconcile bank and credit card accounts, review outstanding invoices, confirm expense classifications, and identify missing receipts or supporting documents.

Businesses should also review contractor payments, payroll records, equipment purchases, and other transactions that may require additional documentation or reporting.

Organizing records before year-end can make it easier to identify issues while there is still time to address them. It also gives a tax professional a more reliable foundation for evaluating the taxpayer’s position.

Why Year-End Tax Planning Should Not Wait Until Tax Season

Preparing a tax return and planning for taxes are different processes. Return preparation reports what happened during the year. Tax planning evaluates decisions that may still be available before the year closes.

The most appropriate actions depend on the taxpayer’s income, financial goals, business activities, and applicable tax rules. Some opportunities may require action before December 31, while others can be addressed later. Understanding the difference is an important part of the planning process.

A professional review is particularly valuable when income has changed substantially, a major transaction is planned, a business is growing, retirement decisions are approaching, or the taxpayer is uncertain whether current tax payments are sufficient.

Rather than relying on a generic checklist, taxpayers can benefit from evaluating their actual financial position and prioritizing the issues that matter most to them.

Work With Velin & Associates, Inc. on Your Year-End Tax Planning

Year-end tax planning is not limited to large corporations or high-income investors. Individuals, families, self-employed professionals, and businesses of different sizes may all benefit from reviewing their tax positions before the end of the year.

Velin & Associates, Inc. helps clients evaluate financial information, identify tax considerations, and plan for upcoming obligations. Our approach focuses on understanding each client’s circumstances and determining which issues deserve professional attention.

Before December 31, take the opportunity to review your 2026 tax position. Whether you are an individual with changing income, a self-employed professional, or a business owner planning for continued growth, a timely tax review can help you make better-informed decisions and prepare for the year ahead. For more information about our tax planning and tax compliance services, contact Velin & Associates, Inc. today.

Velin & Associates, Inc.

8159 Santa Monica Blvd STE 198/200
West Hollywood, CA 90046
📞 323-902-1000
📧 dmitriy@losangelescpa.org

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