Three Key Insights
- Smart year-end tax planning isn’t about spending more—it’s about timing existing expenses, reviewing your structure to avoid overpaying, and maximizing available deductions.
- The best strategies are simple, low-disruption, and focus on optimizing what you’re already doing. December 31 is your final opportunity to make moves that could save thousands.
- For business owners and high earners, effective planning means knowing which strategies fit your situation—and ignoring complex tactics that sound good but rarely deliver.
At Ahlbeck & Cook, we remind clients that effective year-end tax planning starts long before December 31, and it’s about strategy, not speed. The goal isn’t to find clever loopholes or rush into last-minute spending sprees that fuel deductions. It’s to make thoughtful, evidence-based decisions that align with how your business actually operates.
By reviewing your income timing, expenses, and overall structure before the year closes, you can uncover opportunities to defer taxes, accelerate deductions, and strengthen cash flow without disrupting day-to-day operations. The best results come from focusing on moves you can execute cleanly within your existing systems—actions that improve your long-term financial position, not just your short-term tax bill.
Here are six practical strategies to consider before year-end.
1. Accelerate Deductible Expenses You Were Planning Anyway
You likely have expenses coming in January or February that could be paid in December instead. This isn’t about forcing deductions; it’s about timing expenses you were going to incur regardless.
If you’re looking to lower your taxable income and have excess capital, consider prepaying items such as:
- January rent (if your landlord accepts early payment)
- Q1 insurance premiums
- Professional dues and subscriptions for 2026
- Planned repairs or maintenance
- Supplies and inventory you’ll need in the next few months
This only makes sense if you’re profitable in 2025 and the deductions provide immediate benefit. Don’t create cash flow problems just to accelerate deductions. Businesses that use cash-basis accounting have more flexibility here. Accrual-basis businesses face tighter constraints but should still evaluate discretionary year-end expenses.
2. Maximize Retirement Contributions
Retirement contributions offer a powerful combination of immediate tax savings and long-term wealth growth. For 2025, contribution limits remain substantial enough to make year-end a valuable opportunity to review and maximize your contributions.
Individual contributions:
- 401(k): $23,500 ($30,500 if age 50+)
- IRA: $7,000 ($8,000 if age 50+)
- SEP-IRA and Solo 401(k) options for self-employed individuals
If you operate a business with employees, profit-sharing contributions and employer matches can provide substantial deductions while benefiting your team. These contributions typically have more time (until your tax filing deadline plus extensions), but planning should happen now.
3. Review Equipment and Asset Purchases
The passage of the One Big Beautiful Bill restored bonus depreciation to 100%, and Section 179 expensing limits have increased substantially. If you’re planning equipment purchases for early 2026, consider whether buying before year-end provides meaningful tax benefits.
The critical question: Were you planning this purchase anyway?
A $50,000 equipment investment might generate $10,000 to $15,000 in tax savings, but it still requires $35,000 to $40,000 in cash. Don’t let tax benefits drive purchases that don’t make operational sense.
When acceleration makes sense:
- Equipment is failing and needs replacement soon
- Cash or financing is readily available
- You expect significantly higher 2025 income than 2026 income
- The purchase serves a genuine business need
When to wait:
- You’re stretching to find the cash
- The equipment serves a marginal business purpose
- You’re buying primarily for tax benefits
4. Harvest Investment Losses
If you hold investments in taxable accounts (not retirement accounts), year-end provides an opportunity to harvest losses that offset gains elsewhere in your portfolio. Sell investments trading below your purchase price to realize losses that offset capital gains. You can then reinvest in similar (but not identical) securities to maintain your investment strategy while capturing tax benefits.
Key considerations:
- Losses offset gains dollar-for-dollar
- Excess losses offset up to $3,000 of ordinary income annually
- Remaining losses carry forward to future years
- Avoid wash sale rules by waiting 30 days before repurchasing the same security
This strategy requires coordination with your investment advisor and careful attention to timing and wash sale rules.
5. Review Estimated Tax Payments
If you’re self-employed or have significant income not subject to withholding, reviewing your estimated tax payments prevents underpayment penalties and year-end surprises. You generally avoid penalties if you pay either:
- 90% of your current year tax liability, or
- 100% of your prior year tax liability (110% if AGI exceeds $150,000)
If you’re short on estimated payments, making a year-end payment—even if slightly late—reduces penalties compared to paying at filing time. For employees, you can also increase W-2 withholding in December, which is treated as paid evenly throughout the year.
6. Ensure Proper Expense Documentation
Year-end provides a natural checkpoint to verify your business expense records are in order. In an audit, poor documentation means lost deductions. Focus areas include:
- Missing receipts for significant purchases
- Inadequate documentation for meals and entertainment (business purpose, attendees)
- Mixed business and personal expenses without proper allocation
- Vehicle mileage logs that aren’t contemporaneous
You don’t need perfect records, but you need reasonable documentation. Spending an hour now reviewing credit card statements and documenting business purposes for large or unusual expenses protects deductions later.
Making Planning Decisions in the Real World
Effective year-end tax planning balances opportunity against practical constraints. The best strategies typically:
- Work with money you’re already spending
- Require minimal disruption to business operations
- Deliver meaningful tax savings relative to effort and cost
- Fit your specific situation rather than following generic advice
At Ahlbeck & Cook, we work with Chicago-area business owners and high-earning individuals to identify planning opportunities that make sense given the realities of cash flow, operational demands, and individual tax situations. Our approach focuses on practical strategies that deliver value without creating new problems.
Contact Ahlbeck & Cook today to discuss which year-end planning moves make sense for your specific situation and ensure you’re positioned to minimize taxes while maintaining operational flexibility.
