How to Prepare Your Small Business For Tax Season

The IRS begins accepting returns in mid-to-late January, and for small business owners juggling payroll, contractors, and quarterly payments, that deadline comes fast.

With inflation and tariffs still impacting operating costs, year-end is your best opportunity to tighten up your books, identify deductions, and make strategic financial decisions before December 31. A little planning now can prevent costly mistakes later—and help you start the new year with confidence.

5 Smart Tax Moves to Make Before Year-End

1. Review and categorize expenses.
Go through your business accounts and receipts to ensure every expense is properly categorized. Common deductions include business travel, software subscriptions, marketing costs, and professional services. Keep in mind that some deductions—such as travel, home office, or vehicle expenses—have specific documentation requirements and special limitations, so accurate records are essential. Misclassified or missing expenses can mean lost deductions.

2. Verify 1099s for contractors.
If you’ve paid freelancers or independent contractors $600 or more for services, you must issue Form 1099-NEC by January 31, 2026. (Payments for goods don’t require a 1099.) Make sure you’re issuing these forms only for payments made as part of your trade or business, not personal expenses. Confirm their W-9s are on file now so you’re not chasing down tax forms during filing season.

3. Check your payroll records.
Make sure all employee wages, bonuses, and benefits have been accurately recorded. If you offer year-end bonuses or commissions, plan them early so you can properly withhold taxes. Remember that bonuses must be reported in the year employees constructively receive them, which may differ from when they were earned.

4. Consider prepaying deductible expenses.
If you expect higher income this year, you may lower your taxable income by prepaying for deductible expenses like rent, insurance, or supplies before December 31. This strategy generally applies to cash-basis taxpayers; accrual-basis businesses follow different rules, so verify your accounting method first.

5. Evaluate equipment or tech upgrades.
Under Section 179, you may be able to deduct the full cost of qualifying equipment or software purchased this year. Talk to a professional before making any large purchases to confirm eligibility.

Questions SMBs Should Be Asking Before Filing

Before year-end closes, take time to review your records and plans. Ask yourself (and your accountant or tax advisor):

• Have I tracked and categorized all my business expenses? Am I missing any deductions, like mileage, subscriptions, or home office costs?
• Should I prepay for next year’s expenses? Would doing so lower this year’s taxable income without hurting cash flow?
• Are my contractor forms in order? Have I collected and verified all W-9s before sending 1099s?
• Would a tax pro or Rocket Copilot help me catch something I missed? Am I confident my business is fully compliant and maximizing deductions?

What to Do Next

1. Schedule a tax review meeting. A quick conversation with your accountant now can save hours of back-and-forth in April.
2. Double-check contractor and payroll records. Confirm everyone’s information is correct to avoid filing errors.
3. Plan early for next year. Set up a monthly bookkeeping routine or use accounting software integrations to stay organized year-round.

With a little foresight, tax season doesn’t have to be stressful. The sooner you prepare, the more control you’ll have—and the more money you could save come filing time.