Year-End Tax Planning for Businesses: 5 Steps to Take Before December 31, 2026
The best tax planning happens throughout the year, but the final weeks of 2026 still offer real opportunities. There are a few new rules every business owner should understand before the books close.
The 2025 tax law, the One Big Beautiful Bill Act, (OBBBA) is fully in effect, which means new payroll reporting, permanent 100% bonus depreciation, and a significant change to how business meals are deducted. The five steps below will help position your business for a smoother tax season and a lower tax bill.
1. Get your books in order now
Year-end planning is only as good as the numbers behind it. Before December, sit down with your bookkeeper and review your year-to-date financial statements.
Does the income reported match what you experienced in the business this year?
If profit looks higher or lower than expected, now is the time to find out why while there is still time to act.
- Reconcile balances. Reconcile bank, credit card, loan, payroll, and sales tax accounts through the most recent month-end. Clean balances make year-end projections reliable and shorten the return process when filing season arrives.
- Capture expenses paid personally. Review personal credit card statements for business expenses paid out of pocket. Owners and employees should be reimbursed under an accountable plan, which requires a business connection, adequate substantiation and the return of any excess advances. Reimbursements under a properly run plan are generally not wages; unsubstantiated amounts are taxable compensation. Collect receipts before year-end close.
2. Payroll: New reporting for tips and overtime
Employees can now claim new deductions for qualified tips and qualified overtime on their personal returns. Those deductions depend entirely on information the employer reports.
For 2026 Forms W-2, employers must separately report qualified tips in Box 12 using Code TP (along with a Treasury tipped occupation code in Box 14b) and qualified overtime in Box 12 using Code TT. Tips remain taxable wages, and both tips and overtime remain subject to Social Security and Medicare tax.
It is important to understand what “no tax on tips” and “no tax on overtime” do not mean.
No tax on tips and no tax on overtime are deductions employees claim on their own returns, not exclusions from payroll.
Normal federal income tax withholding continues unless an employee submits a new Form W-4. Qualified overtime is generally only the premium portion required by the Fair Labor Standards Act, the “half” in time-and-a-half, paid to non-exempt employees, so state-mandated or contractual overtime must be analyzed separately. On the tip side, mandatory service charges and automatic gratuities are not qualified tips.
WM Wisdom:
1. Confirm your payroll provider has set up separate earning codes for qualified tips, service charges and the overtime premium.
2. Send your provider complete tip and overtime data, including point-of-sale tip records, and reconcile it to payroll before the final payroll of the year.
3. Bonus depreciation and Section 179 are still powerful
The 2025 law made 100% bonus depreciation permanent for qualified property acquired and placed in service after January 19, 2025. Qualified property generally includes equipment, machinery, furniture, computers and software, vehicles, and qualified improvement property (most interior improvements to nonresidential buildings), whether new or used. There is no dollar limit and no requirement that the business be profitable.
Section 179 expensing provides a second option. For 2026, businesses can expense up to $2,560,000 of qualifying purchases; the limit begins to phase out once purchases exceed $4,090,000 and is eliminated at $6,650,000. Section 179 is limited to business taxable income but can be elected asset by asset, it is available for used property, and at the business’s election it can apply to certain qualified real property.
Real estate and leasehold improvements. Buildings themselves are depreciated over 27.5 or 39 years, but a cost segregation study can identify components with shorter lives that qualify for bonus depreciation. New manufacturing facilities may also qualify for a separate 100% write-off for qualified production property, which must meet construction and placed-in-service deadlines.
WM Wisdom:
1. The asset must be placed in service: delivered, installed and ready for use by December 31. Ordering it is not enough.
2. Property acquired under a binding contract signed on or before January 19, 2025 remains subject to the older, reduced bonus percentage.
3. Many states do not follow federal bonus depreciation, so the state benefit may be smaller.
4. Business meals: What changed in 2026
For amounts paid or incurred after December 31, 2025, Section 274(o) eliminates the business deduction for two categories of employee meals:
- Meals furnished on the business premises for the convenience of the employer (Section 119 meals); and
- Food and beverages provided at, or in operating, an employer-operated eating facility, such as a company cafeteria, including de minimis food provided there.
These meals were 50% deductible through 2025; beginning in 2026 they are generally not deductible at all. Examples include regular on-site lunches provided to keep employees available during the workday or busy season, or cafeteria meals. The convenience-of-the-employer label depends on a documented, noncompensatory business reason for providing the meals.
Not every meal deduction disappears. The chart below shows how common meal expenses are treated for 2026 under current IRS guidance:
| Nondeductible | 50% Deductible | 100% Deductible |
| NEW for 2026: Meals furnished on business premises for the convenience of the employer (e.g., regular on-site lunches to keep employees available) | Business meals with current or potential clients | Holiday parties, company picnics and other recreational events primarily for employees |
| NEW for 2026: Food and beverages at an employer-operated eating facility, such as a company cafeteria | Meals while traveling away from home on business | Meals included in an employee’s taxable wages |
| Client entertainment, such as sporting event or concert tickets and golf | Meals at business meetings with employees, stockholders or directors (e.g., a working lunch at a training session) | Meals included in income reported to an independent contractor |
| Meals provided with entertainment that are not separately billed or stated on the invoice | Meals at business league or chamber of commerce meetings | Food and beverages made available free to the general public |
| Occasional snacks, coffee and similar de minimis food in the workplace (not at an eating facility) | Food sold to customers (restaurants and caterers, including similar food provided to employees on shift) | |
| Meals provided with entertainment that are separately billed or stated on the invoice | Meals required by federal law for crews on certain commercial vessels, oil and gas platforms and fishing vessels |
Because the line between a nondeductible convenience-of-the-employer meal and a still-deductible meeting meal or occasional overtime meal depends on the facts, businesses should update their chart of accounts now to track employee meals in separate categories and keep notes on the purpose of each event. Client entertainment, such as sporting event tickets or golf, remains nondeductible.
5. Business owners: partnerships and self-employment tax
Limited partners have historically excluded their share of partnership income from self-employment tax under Section 1402(a)(13). That position is now under close scrutiny. The Tax Court applies a functional test: the “limited partner” label on the partnership or LLC agreement is not enough. Instead, the court asks whether the partner functions like a passive investor by reviewing:
- the partner’s role in management
- hours worked
- how the income is generated, and
- how much capital the partner contributed.
The exception has been denied where partners were essential to the business, exercised control, worked full time and contributed little capital. Appellate courts have not agreed on the standard, and further appeals are pending, so the issue may ultimately reach the Supreme Court.
What does this mean for you?
if you are a limited partner or LLC member who does not pay self-employment tax on your share of income, ask yourself the following two questions:
- Do you manage the business
- How many hours do you work in it?
Once you know the answer to those questions, have a conversation with your CPA before year-end. Keep contemporaneous records of your hours, duties and decision-making authority, and confirm that the operating agreement and the way the business actually operates support the position.
Year-end checklist
| Action | Timing |
| Review year-to-date financials with your bookkeeper and reconcile accounts | November |
| Collect receipts for business expenses paid personally; reimburse under accountable plan | Before year-end close |
| Send tip and overtime data to payroll provider; review W-2 preview | Before final 2026 payroll |
| Place equipment, vehicles and improvements in service | By December 31, 2026 |
| Decide bonus depreciation, Section 179 and elect-out strategy with your CPA | December |
| Recode employee meal expenses into separate categories | Now, for all 2026 activity |
| Document limited partner hours and duties; review SE tax position with CPA | Before year-end |
Every business is different, and the right year-end move depends on your projected income, your plans for 2027 and the states in which you operate.
To schedule a year-end planning meeting or if have questions on this or other matters affecting you or your business, please call 215.675.8364 or email us to speak with a CPA today.
DISCLAIMER: All communications by Wouch, Maloney & Co., LLP intend to provide general information, as of the date of the communication, and may reference information from reputable sources. Although our firm has made every reasonable effort to ensure that the information provided is accurate, we make no warranties, expressed or implied, on the information provided. Please be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed.
