Lone Tree, Colorado
Tax planning · Before December 31, 2026
What to do in the next few weeks to lower your 2026 tax bill, get the most out of the new federal rules, and avoid a surprise in April.
For small business owners, the end of the year is a critical time. If your business ramps up for the holidays, you’re heading into the busiest weeks of your year. If your business winds down at year end, you have the next few months to take stock of how 2026 went and how to drive growth in 2027.
Either way, the tax decisions that matter most for 2026 have to be made before December 31. Here are six to look at now, with the Colorado wrinkles that most national articles leave out.
If you use the cash method, buy needed supplies, pay January rent, or settle service bills before December 31 to pull those deductions into 2026.
Hold December invoices until early January, or let non-essential receivables roll into the new year, if you want to push income into 2027.
A caution: deferring income only helps if you expect to be in the same or a lower bracket next year. If 2027 is shaping up to be a bigger year, stacking December’s income on top of it can cost you more than it saves. Run the numbers before you hold the invoices.
Accrual-basis businesses record revenue and expenses when earned or incurred, regardless of when the cash moves, so these timing moves generally don’t apply.
Deduct the full purchase price of qualifying equipment, machinery, vehicles, and software, up to $2,560,000 for 2026. The equipment has to be purchased and placed in service by midnight on December 31. Ordered and sitting on a truck doesn’t count.
For property acquired after January 19, 2025, bonus depreciation is 100% again, and this time it doesn’t phase down. That changes the math on larger purchases: anything above the Section 179 limit, and anything Section 179 can’t reach because of its taxable-income cap, can generally be written off in full the first year.
One thing to remember: a deduction is only worth something if you have income to use it against. Buying equipment in December to “save on taxes” only makes sense if you needed the equipment anyway.
Contributions to a Solo 401(k), SEP IRA, or profit-sharing plan lower your taxable business income while building personal wealth that grows tax-deferred.
Timing matters more than most owners realize:
Eligible sole proprietors, partnerships, LLCs, and S corporations can deduct up to 20% of their qualified business income on the federal return. The deduction was made permanent in 2025 and the phase-out range was widened, so more owners of service businesses (consultants, health professionals, attorneys, financial advisors) can now get at least part of it.
If your taxable income is near the phase-out thresholds, the timing moves in items 1 through 3 can be the difference between getting the deduction and losing it. This is one to model before year-end, not after.
Colorado does not follow the federal QBI deduction for higher-income filers. The state requires the deduction to be added back when figuring Colorado taxable income, and in 2025 the legislature made that addback permanent starting with the 2026 tax year. (Farmers filing Schedule F are excepted.) So the QBI deduction lowers your federal tax but may not lower your Colorado tax. Factor that into any planning that relies on it.
Revisit whether your current form (sole proprietorship, LLC, S corporation, C corporation) still matches your profit level. An S election that made sense at $60,000 of profit can look very different at $200,000, and the reverse is true too.
If you’re an S corporation owner-employee, review your W-2 salary against your distributions before the last payroll of the year. Too low a salary is the most common thing the IRS looks at on S corp returns, and it’s much easier to fix in December than in an audit.
Colorado allows a pass-through entity tax (PTET) election under the SALT Parity Act. The partnership or S corporation pays Colorado income tax at the entity level, deducts it on the federal return, and the owners get a credit on their Colorado returns. For owners whose state and local taxes exceed the federal SALT deduction cap, this can be a meaningful federal saving. The election is made on the entity’s Colorado return, so it needs to be part of your year-end plan, not an afterthought in April.
Compare your actual year-to-date profit against what you’ve paid in quarterly estimates. If the business did noticeably better or worse than projected, adjust the January 15 payment. An underpayment penalty is interest you pay for nothing.
Reconcile every bank, credit card, and payroll account. Organize receipts for travel, meals, home office, and startup costs. Clean records are what make everything above possible: you can’t plan around numbers you don’t have.
Most of these moves have to happen before the year ends. A planning conversation on December 29 is too late to buy and install equipment, open a 401(k), or change a payroll run.
Book a year-end planning session by December 12 so there’s time to act on what we find.
We’ll go through your 2026 numbers, model the moves that apply to your business, and leave you with a short list of what to do and by when.
Call 303-734-1040 or email 1040@taxshop.tax and ask for Todd.
Todd Mata, JD, LLM, CPAThirty years in tax, from Fortune 500 tax departments to small business owners in Highlands Ranch. He has owned a business of his own, so he has sat on the client’s side of the desk. More about Todd →
Individual rather than business? Start with the questions to ask yourself before December 31, 2026, or see all tax planning topics.
This article is general information for Colorado small business owners and isn’t tax advice for your specific situation. Dollar limits are for the 2026 tax year. The right move for your business depends on your numbers; talk to us before acting on any of it.