The Year-End Checklist That Actually Moves Your Tax Bill

Year-end tax articles are mostly shopping lists. Buy equipment, prepay expenses, max a retirement account. Those can help, but they are ranked by how easy they are to write about, not by how much they actually change your bill.

Here is the same territory ordered by impact, based on what we see on service-business returns.

1. Fix your entity before January 1

If you are operating as a sole proprietor or single-member LLC with meaningful profit, the entity question is worth more than every deduction below it combined — and it is the only item on this list with a hard calendar deadline you cannot work around after the fact.

Elections have filing windows. Deciding in March means either late-election relief or waiting a full year.

2. Get your reasonable compensation documented

If you already run an S-corp, the salary you set is the highest-risk number on your return. An hour spent building the documentation file — comparable salary data, a description of your role, a written resolution, evidence you ran real payroll on a real schedule — protects the entire structure.

This changes nothing about what you owe this year. It changes what happens if anyone asks.

3. Retirement contributions, in the right order

For an owner-operator with real profit, this is usually the single largest legitimate deduction available, and it is frequently underused because people default to an IRA.

Rough order of capacity, smallest to largest:

1. Traditional or Roth IRA — modest limits, available to nearly everyone.
2. SEP-IRA — a percentage of compensation, much higher ceiling, trivial to administer.
3. Solo 401(k) — employee deferral plus employer contribution, so the highest total for a given profit level, and it allows Roth deferrals.
4. Defined benefit / cash balance plan — for high, stable profit, capacity far above the others, with real administrative cost.

The order matters because a solo 401(k) frequently allows a substantially larger deduction than a SEP at the same profit level. Plans also have establishment deadlines that differ from contribution deadlines — some must exist before year-end even if you fund them later.

4. Accelerate deductions only if the bracket math works

Prepaying expenses and buying equipment shift deductions into the current year. That is worth doing when this year's marginal rate is higher than next year's expected rate.

When next year looks better, accelerating is a mistake — you are trading a deduction worth 24% for one worth 12%. Nobody tells you this because "spend money to save tax" is easier advice than "run a two-year projection."

Do the projection first. Then decide.

5. Clean up the items that quietly cost you

These are small individually and add up:

• Reconcile every account. Unreconciled books mean missed deductions, and missed deductions are the most common thing we find on a review.
• Sort out personal use. Vehicle business-use percentage, the phone, the truck the family drives on weekends. Guessing here is both an overpayment risk and an audit risk.
• Chase down 1099s you need to issue. Subcontractor payments require filing, and the penalties for missing forms are per form.
• Write off what is actually dead. Uncollectible receivables, obsolete equipment still on the books, inventory that will never sell.
• Confirm worker classification. Treating crew as contractors when they function as employees is the most expensive single mistake in the trades, and it compounds across years.

6. Check state conformity before you act

Every federal move above has a state consequence, and states do not all follow federal rules. Bonus depreciation in particular is decoupled in a number of states, so a federal acceleration can create a state addback.

If you operate in more than one state, this is not a footnote.

The thing that is not on the list

Buying something you do not need.

A deduction returns your marginal rate — meaningfully less than a dollar. Spending a dollar you did not need to spend in order to save thirty cents is a net loss of seventy cents, no matter how good it feels in December.

Buy the truck when you need the truck. Then let us time it properly.

If you only do one thing

Get a projection of this year's taxable income before December, with next year's estimate beside it. Every decision above depends on those two numbers, and almost nobody has them when they need them.

That is a two-hour engagement, and it is the one that pays for itself.

Contribution limits, depreciation caps, and thresholds are indexed annually. Confirm current-year figures against IRS guidance before acting, or ask us to pull the numbers for your situation.