Year-End Tax Planning for Contractors: 8 Moves Before Dec. 31
Is it too late to cut this year's tax bill?
No. But the clock is running. Most of the moves that lower your 2026 taxes have to happen by December 31. After that, the year is locked, and your tax return just reports what already happened.
Here are eight moves to look at now, while you can still make them.
1. Buy the Equipment You Need, and Get It Working by Dec. 31
If you were going to buy a truck, a trailer, or new equipment early next year, buying it this year can move the write-off into 2026.
Two rules let you deduct most or all of the cost in the first year instead of spreading it over five or seven years:
Bonus depreciation. It's back to 100% for equipment bought after January 19, 2025. Depreciation is the way the tax code spreads the cost of a big purchase over several years. Bonus depreciation lets you take it all at once.
Section 179. Another way to write off equipment in year one. The limit is over $2.5 million, so for almost every trades business the cap isn't the issue.
The catch is timing. The equipment has to be placed in service by December 31. That means delivered and ready to use. A truck you ordered in December that shows up in January counts next year.
A few things to know about vehicles:
Heavy work trucks get the biggest write-off. A truck or van over 6,000 pounds gross vehicle weight can usually be written off much faster than a car.
Cars and light trucks have yearly caps. The first-year deduction is limited, no matter what you paid.
Business use has to be over 50%. And you need a mileage log to prove it.
One warning. A deduction saves you a slice of what you spend, not all of it. If a $50,000 truck saves you about $15,000 in tax, you're still out $35,000. Buy what the business needs. Then time it well.
2. Pay Your Bills Before the Year Ends
Most small contractors keep their books on a cash basis. That means a cost counts in the year you pay it.
So if you owe your supplier, your insurance agent, or your software subscriptions, paying in December puts the deduction in 2026. A charge on your business credit card counts the day you make it, not the day you pay off the card.
Why not prepay all of next year? Because the IRS has limits on prepaying things like rent and insurance far in advance. Paying bills you already owe is safe. Prepaying a year ahead is worth a quick check first.
3. Get Your Books Caught Up Through December
Every move on this list depends on knowing your profit. If your books are three months behind, you're guessing.
Reconcile your bank and credit card accounts through November now. Then finish December in early January. Reconciling means matching every transaction in your books to your statements, so nothing is missing or counted twice.
Clean books also let you see a big year coming in time to do something about it.
4. Put Money Into a Retirement Plan
For a lot of contractors, this is the biggest deduction they aren't taking. Money you put into a retirement plan for yourself comes off your taxable income now.
The two common plans for a small business owner:
SEP IRA. Simple to set up. You can open it and fund it up to your tax filing deadline, including extensions. So this one can wait until spring.
Solo 401(k). For an owner with no employees other than a spouse. It often lets you put away more at the same income, because you can contribute as both the employee and the employer. In 2026, the employee part alone is up to $24,500. If you run an S-corp, set it up before December 31, because your part has to come out of your paychecks. A sole proprietor opening a first plan can wait until the April filing deadline.
Not sure which fits? That's a five-minute question with your actual profit in front of you.
5. S-Corp Owners: Check Your Salary and Payroll
If your business is an S-corp, the IRS expects you to pay yourself a reasonable salary through payroll before you take distributions. A distribution is money you take out of the business that isn't salary.
Before year end:
Make sure your 2026 salary actually ran through payroll. A salary you meant to pay doesn't count if it never ran.
Get your health insurance onto your W-2. If the S-corp pays your health insurance, it has to show up on your W-2 for you to deduct it. Tell your payroll provider before the final run of the year.
Too low a salary is an audit risk. Too high and you pay extra payroll tax. If you're not sure what's reasonable for your trade, the S Corp Tax Savings Calculator is a good place to start.
6. Get a W-9 From Every Sub Now
In January, you'll need to send a Form 1099-NEC to each sub you paid $2,000 or more in 2026 by check, cash, or bank transfer. That's up from $600 last year. Subs that are corporations, and payments you made by card, are generally left out. The forms are due February 1, 2027.
The hard part isn't the form. It's tracking down a sub's tax ID number in January after the job is long over. Ask every sub you've paid this year for a W-9 now, while they still want your next job.
For the full rules, read 1099 for Subcontractors: What Contractors Need to File.
7. Plan Your January 15 Estimated Payment
Your fourth-quarter estimated tax payment for 2026 is due January 15, 2027. It's easy to forget, because it lands in the middle of the holidays and slow season.
Look at your profit through November and figure it now. That way the cash is set aside before December's bills hit. Here's how to get the number right: Quarterly Estimated Taxes for Contractors: What to Pay.
8. Write Down Your Miles Before You Forget
If you deduct your truck using business miles, the IRS wants a record kept as you go. Rebuilding a year of miles in March is hard to defend.
Check your mileage log now. If there are gaps, fill them in from your job calendar and invoices while you still remember the trips. Then use an app or a notebook in the truck for 2027.
California Doesn't Follow All of This
If you're in California, two of these moves work differently on your state return:
Bonus depreciation. California doesn't allow it.
Section 179. California caps it at $25,000, and the phase-out starts at $200,000 of equipment.
So a truck you write off in one year on your federal return may take several years on your California return. Plan for both numbers, not just the federal one.
Key Takeaway: The moves that cut your 2026 taxes have to happen by December 31. Get your books current first. Then decide on equipment, bills, retirement, and S-corp payroll with real numbers in front of you, not guesses.
At Civita Tax Solutions, we help home service business owners save money on taxes with all-in-one accounting. We handle your bookkeeping, advisory, and tax filing. You focus on the business. We handle the finances.
Want a year-end plan built from your real numbers? Book a free consultation before the year runs out. Or see what we do for contractors.
