5 Year-End Tax Planning Strategies for Businesses in 2026

Before making significant purchases, evaluate:

• • • Cash flow needs
    • Revenue projections
    • Financing terms
    • Other available tax incentives
    • Future-tax-year planning opportunities

In some situations, delaying a deduction may provide greater long-term tax benefits.

2. Claim the Qualified Production Property Deduction

Manufacturers with new construction projects nearing completion may benefit from placing property in service before year end.

Businesses may qualify for a temporary depreciation deduction for qualified production property (QPP) placed in service after July 2, 2025, and before January 1, 2031. This provision allows eligible businesses to deduct 100% of a QPP’s adjusted basis in the year it is placed in service.

Unlike bonus depreciation, the QPP deduction requires an election.

To qualify, property generally must:

• • • Be nonresidential real property
    • Be located in the United States
    • Be used in a qualified production activity
    • Be placed in service between July 4, 2025, and December 31, 2030

Manufacturing, production or refining activities must occur within the physical space of the property.

Property uses that generally do not qualify include:

• • • Office space
    • Administrative functions
    • Lodging facilities
    • Parking areas
    • Sales operations
    • Research activities
    • Software development
    • Engineering operations
    • Storage of finished goods

Additional eligibility rules apply, including restrictions on construction dates and property use.

3. Identify Research and Experimental Expenses and Tax Credits

Many businesses overlook valuable tax incentives because they assume research-related benefits apply only to technology or scientific companies.

However, the Section 174 deduction for research and experimental (R&E) expenses and the Section 41 research credit often apply much more broadly.

Activities that may generate qualified research expenses include:

• • • Developing new products
    • Improving existing products
    • Enhancing manufacturing processes
    • Creating new production methods
    • Testing prototypes
    • Eliminating technical uncertainty

Under current rules, businesses may deduct eligible domestic R&E expenses in the year incurred or paid, regardless of whether a project is complete. Alternatively, they may amortize those costs over at least five years.

Foreign qualified expenses generally must be amortized over 15 years.

Businesses generally have two potential tax benefits:

• • • A Section 174 research and experimental expense deduction
    • A Section 41 research credit

In many situations, businesses cannot claim both benefits on the same expense.

If a business claims the research credit, it generally must reduce the deduction by the credit amount. Alternatively, a Section 280C election may allow the business to reduce the credit while retaining the full deduction.

Because the optimal strategy varies, modeling different tax scenarios can help maximize savings.

4. Maximize Your Qualified Business Income Deduction

The Section 199A qualified business income (QBI) deduction allows owners of certain pass-through businesses to deduct up to 20% of qualified business income.

Businesses that may qualify include:

• • • Sole proprietorships
    • Partnerships
    • S corporations
    • Many limited liability companies (LLCs)

QBI generally consists of the net amount of qualified income, gain, deduction and loss connected with a U.S. trade or business.

The One Big Beautiful Bill Act (OBBBA) expanded the deduction’s phase-in ranges beginning in 2026, allowing some taxpayers to claim larger deductions.

For 2026, the wage and investment limitations generally phase in when taxable income falls between:

• • • $201,750 and $276,750 for individual filers
    • $403,500 and $553,500 for married couples filing jointly

The deduction may be limited to the greater of:

• • • 50% of W-2 wages paid to employees, or
    • 25% of W-2 wages plus 2.5% of the unadjusted basis of qualified business property

Another limitation applies to specified service trades or businesses, including many professional services firms and investment-related businesses. Engineering and architecture firms generally remain eligible.

Year-end planning strategies may include:

• • • Maximizing retirement plan contributions
    • Deferring income into 2027
    • Accelerating deductible expenses into 2026
    • Increasing wages where appropriate
    • Purchasing qualified business property before year end

Before implementing these strategies, evaluate any additional tax and cash-flow implications.

5. Plan for the Excess Business Loss Limitations

Noncorporate taxpayers generally can use business losses to offset income from other sources. However, federal tax law limits the amount that can be used in the current year.

Business losses may offset:

• • • Salary and wages
    • Self-employment income
    • Interest income
    • Dividend income
    • Capital gains

Losses exceeding the annual limit generally become net operating loss (NOL) carryforwards, which remain subject to certain limitations in future years.

The OBBBA made the excess business loss limitation permanent.

For 2026, the limitation decreases to:

• • • $256,000 for individual taxpayers
    • $512,000 for married couples filing jointly

Businesses generating substantial losses through bonus depreciation, currently deductible research expenses or other tax benefits may not receive the full value of those deductions immediately.

If projected losses approach the limitation, consider:

• • • Accelerating taxable income
    • Deferring certain deductions
    • Evaluating future NOL utilization
    • Modeling the impact across multiple tax years

Because these decisions can affect future tax liability, businesses should review them carefully before year end.

Common Year-End Tax Planning Opportunities for Businesses

Before year end, business owners should evaluate:

• • • Capital equipment purchases
    • Manufacturing facility investments
    • Research and development activities
    • Pass-through entity income levels
    • Retirement plan contributions
    • Net operating loss positions
    • Revenue timing opportunities
    • Expense acceleration strategies

Reviewing these areas before December 31 can help identify opportunities that may no longer be available after the tax year closes.

Take a Proactive Approach to Year-End Tax Planning

The months leading up to year end can present valuable opportunities to reduce tax liability, improve cash flow and strengthen your business’s financial position. The right strategy depends on your industry, entity structure and long-term goals.

Contact Boulay today to discuss your year-end tax planning opportunities and build a tax strategy designed for your business.