S Corp Year-End Tax Checklist
- S-Corp Guide
- Nov 11
- 14 min read
9 Things to Do Before December 31
The end of the year is crunch time for S Corporation owners. The decisions you make—or don't make—in December can have a significant impact on your tax bill come April.
Unlike employees who simply receive a W-2 and file their taxes, S Corp owners have multiple year-end tasks that require attention. From verifying your salary is reasonable to maximizing retirement contributions, these final weeks of the year offer critical tax-saving opportunities.
This checklist covers the 9 most important year-end tasks for S Corp owners. Some are compliance requirements you must handle. Others are strategic moves that could save you thousands in taxes. Let's dive in.
Review Your Reasonable Salary
Why This Matters: The IRS requires S Corp owner-employees to pay themselves "reasonable compensation" for services performed. If your salary is too low, the IRS can reclassify distributions as wages, triggering back payroll taxes, penalties, and interest.
Review For Reasonableness: Take a hard look at your salary for the year. Does it reflect the work you actually performed? A common rule of thumb is 30-50% of net income as salary, but this varies significantly by industry and circumstances. A solo consultant might justify 40% as reasonable, while a capital-intensive business owner might justify 25%. A few points to consider:
Industry standards - What do similar businesses pay for comparable roles?
Your responsibilities - Are you wearing multiple hats (CEO, salesperson, operations)?
Time commitment - Are you full-time or part-time in the business?
Company profitability - Higher profits generally require higher salaries
Geographic location - Salaries vary by cost of living
Red Flags That Attract IRS Attention:
Low salaries when the business generates substantial profit. For example, taking only $50,000 salary when the business generates $500,000
Paying yourself less than you'd pay someone else to do your job
Zero salary while taking distributions
Year-End Action Steps:
If your salary is too low and you have cash flow, run additional payroll before December 31
If you can't increase salary this year, document why your current salary is reasonable
Calculate your salary-to-distribution ratio and make sure it's defensible
Use our S Corp Tax Salary Calculator to model different salary scenarios and see the tax impact
Run Your Final Tax Projection
What This Means: Prepare your best guess at your final tax due bill for the year. This is important because December is your last chance to influence how much you'll owe in taxes. But you can't make strategic decisions without knowing where you stand.
What to Do: Pull together all your numbers and project your total tax liability for the year:
Calculate your S Corp pass-through income:
Net business income
Minus your W-2 salary
Minus employer payroll taxes
We strongly recommend using an accounting software (Quickbooks, Xero) so that this task is relatively easy to accomplish
Add your other income sources:
W-2 salary from your S Corp
Any other W-2 income (spouse's job, side work)
Investment income, rental income, etc.
Calculate estimated tax:
Federal income tax on total income
State income tax
Don't forget to factor in your QBI deduction
Compare to what you've paid:
W-2 withholding to date
Estimated quarterly payments made
Do you owe more? Will you get a refund?
Year-End Action Steps:
If you're significantly short, make a Q4 estimated payment before January 15
If you're going to owe, start planning for cash flow to pay the bill
If changes in income/deductions occurred, adjust Q1 2026 estimated payments accordingly
Run your numbers through our S Corp Tax Calculator to see exactly where you stand and review our post on How S Corps Are Taxed to figure out how to run your tax projection
Pro Tip: If you're short on estimated payments, increase W-2 withholding from your S Corp in December. The IRS treats W-2 withholding as if it were paid evenly throughout the year, avoiding underpayment penalties even though you're paying it all at year-end.
Bonus Pro Tip: This is a great example of where working with a tax and/or accounting professional is of great benefit. They can help you plug in your numbers, and provide back your tax estimate.
Accelerate Deductible Expenses
Why This Matters: If you use cash-basis accounting (most small S Corps do), you can deduct expenses in the year you pay them. This gives you control over which year's tax return benefits from the deduction.
What to Do: If you expect higher income this year than next year, accelerating expenses into December can lower your current year tax bill.
Expenses You Can Prepay:
January rent or lease payments
Professional memberships and subscriptions renewing in Q1
Insurance premiums for the next 12 months
Office supplies and equipment under $2,500
Professional services (accounting, legal, consulting)
Software subscriptions (annual vs. monthly)
Advertising and marketing costs
Employee bonuses (must be paid by December 31 for cash-basis businesses)
Expenses You Generally Can't Prepay:
Inventory (must be deducted as sold, not as purchased)
Capital assets over the Section 179 threshold
Multi-year expenses that must be capitalized
Year-End Action Steps:
Review your Q1 2026 bills and see what can be paid in December 2025
Contact vendors about paying early (don't forget to negotiate a discount!)
Review subscriptions and memberships renewing soon
Make sure any prepayments are for legitimate business purposes (the IRS won't allow deductions for sham prepayments)
Common Mistake: Prepaying years' worth of expenses just for the deduction. The IRS requires prepaid expenses to be reasonable in scope. Prepaying 12 months is typically fine; prepaying 36 months will likely be challenged.
Maximize Retirement Contributions
Why This Matters: Retirement contributions are one of the most powerful tax deductions available to S Corp owners. They reduce your taxable income dollar-for-dollar and build your nest egg simultaneously.
What to Do: S Corp owners have several retirement plan options, each with different contribution limits and deadlines:
SEP-IRA (Simplified Employee Pension)
Contribution Limit (2025): Up to 25% of W-2 compensation, maximum $69,000
Key Features:
Employer contributions only (no employee deferrals)
Based on your W-2 salary, not S Corp distributions
Can be set up and funded until your tax return deadline (including extensions)
Simple to administer, low cost
Must cover eligible employees proportionally
Deadline: Tax filing deadline + extensions (as late as October 15, 2026, for 2025 contributions)
Solo 401(k) - an Individual 401(k)
Contribution Limit (2025): Up to $69,000 total ($23,500 employee deferral + employer contribution up to 25% of compensation)
Key Features:
Available only if you have no employees (except spouse)
Combines employee deferrals and employer contributions
Employee deferrals can be Roth or traditional
Catch-up contributions of $7,500 if age 50+ (total: $76,500)
Allows for larger contributions at lower salaries
Deadline:
Plan must be established by December 31, 2025
Employee deferrals must be made by December 31, 2025
Employer contributions can be made until tax filing deadline + extensions
Example: With a $75,000 salary, you could contribute:
$23,500 as employee deferral
$18,750 as employer contribution (25% of $75,000)
Total: $42,250
SIMPLE IRA
Contribution Limit (2025): $16,000 employee deferral + 3% employer match
Key Features:
Designed for businesses with employees
Lower contribution limits than 401(k)
Mandatory employer contribution (3% match or 2% non-elective)
Less administrative burden than full 401(k)
Deadline: Plan must be established by October 1 to be effective for the current year
Consider Equipment Purchases
Why This Matters: If you need business equipment, buying it before December 31 can generate immediate tax deductions rather than depreciating the cost over several years. This is accomplished through Section 179 and Bonus Depreciation.
What to Do: Two tax provisions allow you to deduct the full cost of equipment in the year of purchase:
Section 179 Deduction
2025 Limits: Up to $1,220,000 in equipment purchases (phases out after $3,050,000 in total purchases)
Qualifying Property:
Computers, software, office furniture
Machinery and equipment
Vehicles over 6,000 lbs GVWR (SUVs, trucks)
Some improvements to nonresidential property
Property must be placed in service (used in business) by December 31
Must be purchased (not leased)
Used more than 50% for business purposes
Cannot exceed business taxable income (no loss creation)
No dollar limit on total purchases
Can create business losses (Section 179 cannot)
Applies to new and used property
Phases down to 20% in 2026, then expires
Requirements:
Property must be placed in service (used in business) by December 31
Must be purchased (not leased)
Used more than 50% for business purposes
Cannot exceed business taxable income (no loss creation)
Bonus Depreciation
2025 Rate: 100% of qualifying property cost (if acquired after Jan 20, 2025)
Key Differences from Section 179:
No dollar limit on total purchases
Can create business losses (Section 179 cannot)
Applies to new and used property
Phases down to 20% in 2026, then expires
When to accelerate equipment purchases:
You're having a high-income year
You need the equipment anyway (don't buy just for the deduction)
You have the cash flow to support the purchase
The equipment will genuinely be used in the business
When to wait:
Your income is lower this year than expected next year
You don't have cash flow
You're buying just for the tax deduction (bad financial decision)
The equipment won't be used significantly for business
Vehicles: Special rules apply to vehicles. SUVs over 6,000 lbs GVWR can qualify for Section 179, but there's a $30,500 limit for these vehicles. Regular cars have much lower limits ($20,200 max first-year depreciation for 2025).
Year-End Action Steps:
Review your equipment needs for the next 12 months
If you're planning purchases anyway, accelerate to December
Make sure equipment is delivered AND placed in service before December 31 (not just ordered)
Keep detailed records of business use percentage
Run the numbers: will the deduction benefit you more this year or next year?
Reconcile Shareholder Basis
Why This Matters: Your basis in your S Corp determines how much loss you can deduct and whether distributions are taxable. If you don't track it properly, you could miss deductions or pay unnecessary taxes.
What to Do: Basis is essentially your "investment" in the S Corp for tax purposes. It increases and decreases based on various transactions:
Basis Increases:
Initial investment when forming the S Corp
Additional capital contributions during the year
Your share of S Corp income (from Schedule K-1)
Your share of tax-exempt income
Basis Decreases:
Distributions you received
Your share of S Corp losses
Your share of nondeductible expenses
Why This Matters for Year-End:
Loss Limitations: You can only deduct S Corp losses up to your basis. If the S Corp lost $50,000 but your basis is only $30,000, you can only deduct $30,000 this year. The remaining $20,000 carries forward.
Distribution Tax Treatment: Distributions up to your basis are tax-free returns of capital. Distributions exceeding basis are taxed as capital gains.
Loan Basis: If you loaned money to your S Corp, you have separate "debt basis" that can allow loss deductions even if stock basis is zero.
Year-End Action Steps:
If you have losses and low basis:
Consider making additional capital contributions before December 31
If you've loaned money to the company, document it properly
Contribute property or equipment to increase basis
If you're planning distributions:
Calculate your basis to ensure distributions won't trigger unexpected capital gains
If basis is insufficient, take smaller distributions or increase basis through contributions
If you haven't been tracking basis:
Reconstruct it from formation through current year
Work with your CPA to create a basis schedule
Gather documentation: K-1s, contribution records, loan documents
Common Mistake: Not tracking basis at all, then discovering in Year 5 that you can't deduct losses or that distributions are unexpectedly taxable. Start a basis tracking spreadsheet now and update it annually.
Prepare Payroll Year-End Reports
Why This Matters: S Corps have multiple payroll tax deadlines in January. Missing them results in penalties and frustrated employees who can't file their tax returns.
What to Do: Even though your S Corp tax return (Form 1120-S) isn't due until March 15, payroll reporting deadlines come much sooner.
W-2s for Employees (Including You)
What: Form W-2 reports wages, withholding, and payroll taxes for each employee.
Deadline:
Must provide W-2s to employees by January 31
Must file copies with Social Security Administration by January 31
Year-End Action Steps:
Run your final payroll of the year
Verify all payroll tax deposits were made correctly
Reconcile year-to-date totals (wages, federal withholding, Social Security, Medicare, state taxes)
Generate W-2s through your payroll service (or complete them manually if you handle payroll yourself)
Distribute W-2s to all employees, including yourself
1099-NEC for Contractors
What: Form 1099-NEC reports payments to independent contractors.
Who Gets One: Any non-corporate contractor paid $600+ during the year for services
Deadline:
Must provide 1099-NEC to recipients by January 31
Must file with IRS by January 31
Year-End Action Steps:
Identify all contractors paid $600+ during the year
Verify you have W-9s on file for each contractor
Reconcile total payments made to each contractor
Generate 1099-NECs through your accounting software or payroll service
File electronically if you have 10+ forms (required)
Quarterly Payroll Tax Returns (Form 941)
What: Form 941 reports quarterly payroll taxes and deposits.
Q4 Deadline: January 31, 2026 (for October-December 2025 payroll)
Year-End Action Steps:
Verify all Q4 payroll tax deposits were made on time
Reconcile deposits to actual tax liability
File Form 941 for Q4 by January 31
If you owe taxes, include payment with Form 941
State Unemployment and Other State Requirements
Most states have their own year-end filing requirements:
State unemployment returns (often quarterly)
State withholding reconciliation
Annual state registration renewals
Year-End Action Steps:
Check your state's specific deadlines
File any required Q4 state returns
Prepare for annual state reconciliation forms (often due January 31)
Common Mistake: Thinking your payroll service handles everything automatically. Even with a service, you're ultimately responsible for accuracy and timely filing. Review all reports before they're filed and keep copies.
Organize Records for Form 1120-S
Why This Matters: Your S Corp tax return (Form 1120-S) is due March 15—earlier than personal returns. Getting organized in December gives your CPA time to prepare an accurate return and prevents last-minute scrambling.
What to Do: Form 1120-S requires detailed information about your S Corp's income, expenses, assets, and liabilities. Gathering this information now, while it's fresh, saves headaches later.
Financial Statements You'll Need
Profit & Loss Statement (Income Statement):
All business income by category
All business expenses by category
Year-to-date through December 31
Balance Sheet:
All business assets (cash, equipment, accounts receivable, inventory)
All business liabilities (loans, accounts payable, credit cards)
Shareholder equity (contributions, distributions, retained earnings)
Most accounting software (QuickBooks, Xero, FreshBooks) can generate these reports automatically. If you use spreadsheets or manual systems, compile these now.
Supporting Documentation to Gather
Income Records:
1099s received from clients
Sales records and invoices
Bank statements showing deposits
Credit card processing statements
Expense Records:
Receipts for all business expenses
Canceled checks or bank statements
Credit card statements
Mileage logs for vehicle expenses
Home office calculation (if applicable)
Asset Records:
Equipment purchase receipts
Depreciation schedules
Asset sales or disposals during the year
Loan Documentation:
Loan agreements
Payment records
Interest statements (Form 1098 from lender)
Shareholder Records:
Capital contributions made during year
Distributions taken during year
Loans to/from shareholders
Basis calculations
Reconciliation Tasks
Bank Reconciliation:
Reconcile all business bank accounts through December 31
Identify any uncleared checks or deposits in transit
Resolve any discrepancies
Credit Card Reconciliation:
Reconcile all business credit cards through December 31
Categorize all transactions
Verify business vs. personal expense splits
Accounts Receivable/Payable:
List all outstanding customer invoices (accounts receivable)
List all unpaid vendor bills (accounts payable)
These affect your balance sheet
Inventory (if applicable):
Physical inventory count as of December 31
Valuation of inventory on hand
Cost of goods sold calculation
Information Your CPA Will Need
Business Information:
Federal EIN
State ID numbers
Business address
Date of incorporation/election
Principal business activity code
Shareholder Information:
Names, addresses, Social Security numbers
Ownership percentages
Stock basis information
Distributions taken by each shareholder
Payroll Information:
Total W-2 wages paid
Payroll tax deposits made
Form 941 copies for all quarters
State unemployment reports
Estimated Tax Payments:
Federal estimated payments made (dates and amounts)
State estimated payments made
Any extension payments from prior year
Year-End Action Steps:
Before December 31:
Catch up on bookkeeping (don't start the year behind)
Reconcile all accounts
Code/categorize all transactions
Run preliminary P&L and balance sheet
Early January:
Finalize all December transactions
Run final financial statements
Compile all documentation listed above
Create a folder (physical or digital) for your CPA
Mid-January:
Send organized information to your CPA
This gives them 2 months to prepare your return (due March 15)
Early filing = early K-1 for your personal return
Questions to Ask Your CPA:
Do you need any additional information?
Are there any issues or red flags in the numbers?
Do I qualify for any deductions I'm missing?
Should I make any changes for next year?
Common Mistake: Sending your CPA a shoebox of receipts on March 1 and expecting a completed return by March 15. Give your CPA organized information by mid-January at the latest. Better yet, use the slow November-December period to get everything ready.
Plan Your 2026 Business Strategy
Why This Matters: Year-end isn't just about closing books—it's about positioning your business for success. Taking time now to plan your tax strategy, financial projections, and cash flow sets you up to make informed decisions all year long.
Plan Your Tax Strategy for 2026
State Pass-Through Entity (PTE) Tax Election: If you're in a high-tax state paying over $10,000 in state income tax, PTE election could save $10,000-$20,000+ in federal taxes. Most states require election by March 15, so plan now.
Retirement Plan Strategy: Decide your plan type for 2026. Solo 401(k) must be established by December 31 for current year contributions; SEP-IRA can be set up until tax filing deadline. Build monthly retirement contributions into your cash flow projections.
Equipment and Asset Purchases: Bonus depreciation drops from 40% (2025) to 20% (2026). List equipment needs for the next 12-24 months and decide whether to accelerate purchases into 2025 or spread across 2026.
Salary Optimization: Review whether your 2025 salary was reasonable and plan 2026 salary based on expected income. Run projections through our S Corp Calculator with different scenarios and adjust payroll withholding to avoid quarterly payment surprises.
Create a Margin Projection for 2026 - Build a simple profit projection to guide your decisions about pricing, hiring, and distributions:
What to Include:
Revenue forecast (monthly breakdown accounting for seasonality)
Cost of Goods Sold (direct costs to deliver your product/service)
Operating expenses (fixed and variable costs, plus CPA fees and estimated tax payments)
Expected net profit and margin percentage
Year-End Action Steps:
Use 2025 actuals as baseline
Build in 10-20% revenue contingency for conservative planning
Set margin improvement goals (pricing adjustments, cost reductions)
Compare your projected margin to industry benchmarks
Project Your Cash Flow for 2026 - Profit and cash are not the same. You can be profitable but run out of cash if you don't plan timing.
What to Project:
Starting cash position (January 1 bank balance plus expected collections)
Monthly inflows (when you actually receive cash, not when you invoice)
Monthly outflows (payroll, overhead, quarterly tax payments, retirement, distributions)
Timing issues (payment terms, seasonal variations, big expense months)
Year-End Action Steps:
Create a simple monthly cash flow spreadsheet (starting cash + inflows - outflows = ending cash)
Identify months where expenses exceed collections
Set cash reserve goal of 2-3 months operating expenses
Plan when you can safely take distributions without straining working capital
Common Mistake: Operating reactively all year, then scrambling in December. The most successful S Corp owners plan proactively, review quarterly, and adjust as they go.
Your Year-End Action Plan
Managing an S Corp requires attention to detail and proactive planning. These 9 year-end tasks will help you close out the year properly, minimize your tax bill, and position yourself for success in the coming year.
Priority Tasks (Must Do Before December 31):
Verify reasonable salary is defensible
Run tax projection to avoid surprises
Make strategic equipment purchases if beneficial
Set up Solo 401(k) if you want one (contributions can come later)
Reconcile shareholder basis
January Tasks (Early in the Month):
Make Q4 estimated payment (by January 15)
Issue W-2s to employees (by January 31)
Issue 1099-NECs to contractors (by January 31)
File Form 941 for Q4 (by January 31)
Organize records for your CPA
Strategic Planning (January-February):
Evaluate PTE election for your state
Plan 2026 budget, margin and cash flows
Review retirement contribution strategy
Implement improvements based on lessons learned
The most successful S Corp owners don't scramble at year-end—they work through this checklist methodically in November and December, then start the new year organized and optimized.
Need help calculating your S Corp tax situation? Our S Corp Tax Savings Calculator shows you exactly how much you could save, helps you determine reasonable salary, and projects your tax liability. It takes 60 seconds and gives you a downloadable PDF analysis.
For deeper understanding of S Corp taxation, check out:
How Does S Corp Save Taxes? - The mechanics behind the savings
How Are S Corps Taxed? - Complete guide to pass-through taxation and filing requirements
How to Become an S Corporation - Step-by-step election process
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Legal Disclaimer: The information provided in this article is for educational purposes only and should not be construed as tax, legal, or financial advice. Tax situations are highly individual and complex. Always consult with a qualified tax professional, CPA, or attorney before making any decisions regarding S-Corporation elections, entity structure changes, or tax planning strategies. Calculator results are estimates only and may not account for all relevant tax provisions or your specific circumstances. SCorpGuide.com and Forever Exploring LLC are not liable for any decisions made based on information provided on this site. For complete terms, see our Terms and Disclaimers.
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