Year-end tax planning for the self-employed: nine moves to make before December 31

Good year-end tax planning for the self-employed starts with one fact: a deduction saves your tax rate, not the dollar. Spend $1,000 on something you did not need and you get back roughly $250 to $350. You are still $650 down. So the best year-end moves are not purchases. They are timing, retirement money you keep, and paperwork that turns spending you already did into deductions you can prove.

Here are nine moves for sole proprietors, 1099 workers and single-member LLCs, in the order we would make them, with the deadline for each. All of them depend on one thing: knowing your profit for the year before December 31.

Before any move: know your number

Every decision below is "does this change my tax, and by how much". You cannot answer that without a current profit figure. If your books stopped in spring, fix that first. Our guide to catching up on bookkeeping before tax season gets you there one month per sitting. Then use the table below to see what a deduction is worth to you.

Rough figures combining self-employment tax (15.3% on 92.35% of profit, Social Security part capped at the $184,500 wage base for 2026) and federal income tax after the standard deduction and the qualified business income deduction. Married filers and people with other income will differ. Use it to rank moves, not to file.

Read it this way: if you are in the 12% bracket, a $2,000 laptop you did not need saves about $500 and costs $1,500. A laptop you were going to buy in February anyway, bought in December instead, costs nothing extra and saves the same $500 a year earlier. That is the whole logic of year-end planning.

The nine year-end moves, ranked

1. Put money into a retirement plan

This is the only big deduction where you keep the money. It lowers income tax, not self-employment tax, so it saves your federal bracket plus state rather than the full figure in the table. A SEP-IRA lets you contribute up to 20% of net self-employment earnings, and you can open and fund it until your filing deadline, including extensions. A Solo 401(k) allows more at lower incomes, because you contribute as both employee and employer; the 2026 employee deferral limit is $24,500 (check the IRS figure before you contribute). To make December salary deferrals count cleanly, open the Solo 401(k) before December 31. Providers take a week or two, so start in November.

2. Size your January 15 payment from a real number

The fourth-quarter estimated payment is due January 15, 2027. Two safe-harbor options: pay enough that your 2026 payments total 100% of your 2025 tax (110% if your 2025 adjusted gross income was over $150,000), or pay 90% of what you will actually owe for 2026. The first needs last year's return. The second needs current books. Our quarterly estimated tax guide walks through Form 1040-ES, and the 1099 set-aside table gives you the percentage.

3. Buy what you already planned to buy, and put it in service

Equipment you would buy in the first months of next year anyway (a laptop, a camera, a tool) can be deducted this year if you buy it and start using it by December 31. Ordered is not enough; it has to be placed in service. Section 179 and bonus depreciation let most small-business equipment be deducted in full in year one. Items up to $2,500 each can usually be expensed straight away under the de minimis rule. Do not buy a truck to save tax. See the table above: the truck still costs you most of its price.

4. Pay December's bills in December

Most sole proprietors use the cash method: an expense counts in the year you pay it. Paying January's software renewal, a contractor's December invoice or next year's professional dues before December 31 moves the deduction into 2026. Prepaying for a service that runs no more than 12 months generally qualifies. Paying three years of anything in advance does not.

5. Time your invoices, honestly

The same cash rule works for income. Work you finish on December 20 and invoice on January 2 is usually 2027 income. That helps if 2027 will be a lower year, or if you are right on the edge of a bracket. The limit is constructive receipt: a check you have in hand, or money a client has made available to you, counts when it is available, not when you choose to deposit it. Do not sit on payments you have already received.

6. Close out your mileage log

Write down your odometer reading on December 31. Then check that every business trip this year has a date, destination, miles and purpose. At the standard mileage rate, a few hundred missing miles is real money, and a log with gaps is the first thing an examiner questions. If you have not kept one, rebuild it from your calendar now, while you still remember the trips.

7. Measure your home office

If you work from a room used only for business, measure it and the home. The simplified method is $5 per square foot up to 300 square feet, so a 150-square-foot office is a $750 deduction. The regular method can be larger but brings depreciation into it. Either way, a tape measure in December beats a guess in April.

8. Check health insurance and HSA contributions

Self-employed health insurance premiums are generally deductible for you and your family when you were not eligible for an employer plan. If you have a high-deductible plan, HSA contributions for 2026 can be made until the April filing deadline, but knowing your room now lets you plan cash for it.

9. Clean up the paper trail

Receipts for everything $75 or more, all meals, travel and gifts. A list of every asset you bought this year with date and cost. A list of contractors you paid, because 1099-NEC forms are due to them and the IRS by January 31 (the reporting threshold rose from $600 to $2,000 for payments made in 2026; check the IRS instructions). This move saves no tax by itself. It protects the deductions from the other eight.

Your year-end checklist with deadlines

A worked example: $90,000 of profit in December

A freelance developer, single, no state income tax, has $90,000 of profit on the books by December 1. She was going to replace her laptop in March for $2,400, she owes a subcontractor $1,500 for November work, and she has paid $12,000 in estimates so far.

• Laptop bought and set up on December 12: about $750 less tax for 2026, no extra spending.
• Subcontractor paid December 28 instead of January 5: about $470 less tax for 2026, same money out.
• $8,000 into a SEP-IRA before she files: about $1,500 less federal income tax, and the $8,000 is still hers. Retirement contributions cut income tax, not self-employment tax, so they save less per dollar than the table suggests.
• January 15 payment sized from the new profit figure: no underpayment penalty and no April surprise.

Total: roughly $2,700 of tax saved, and not one dollar spent that she was not going to spend anyway. That is what good year-end planning looks like.

Moves we would skip

• Buying things to "use up" a deduction. The table at the top says why. You spend a dollar to save a quarter.
• Prepaying rent or insurance for years ahead. The 12-month rule stops most of it, and the rest invites questions.
• Recording personal spending as business. A family dinner is not a client meal. The deduction is small and the downside in an audit is not.
• Switching to an S-corp on December 20. It can make sense at higher profits, but it is a next-year decision with payroll attached, made with a CPA, not a December scramble.

If you do nothing else

Do three things: get your books current, write down your odometer on December 31, and pay the January 15 estimate from a real number. That covers the penalty, protects the mileage deduction and gives your preparer a clean start. Everything else on this list is a bonus. Our sole proprietor bookkeeping guide shows the weekly routine that makes next December a ten-minute review instead of a project, and our list of freelancer deductions for 2026 covers what counts.

FAQ

What should self-employed people do before December 31 for taxes?

Get your books current so you know your profit, open a Solo 401(k) if you want one, buy and start using equipment you already planned to buy, pay December bills, write down your odometer reading, and plan the January 15 estimated payment from your real numbers.

Is it worth buying equipment at the end of the year to save tax?

Only if you would buy it soon anyway. A deduction saves your marginal tax rate, roughly 25 to 35 cents per dollar for most self-employed people, so an unnecessary purchase still costs you most of its price. The equipment also has to be placed in service by December 31.

When is the deadline to contribute to a SEP-IRA for 2026?

You can open and fund a SEP-IRA for 2026 up to your tax filing deadline, including extensions. A Solo 401(k) should be opened by December 31 so salary deferrals for the year count cleanly.

Can I delay invoices to lower this year's taxes?

On the cash method, income generally counts when you receive it, so invoicing late-December work in January usually moves that income to next year. You cannot delay depositing a payment you already have; money that is available to you counts when it is available.

When is the fourth quarter estimated tax payment due?

The fourth-quarter payment for 2026 is due January 15, 2027. Paying 100% of last year's tax across the year (110% if last year's adjusted gross income was over $150,000) or 90% of this year's tax avoids the underpayment penalty.