Year-End Strategies for Accrual-Basis Businesses

November 3, 2025

As the calendar year draws to a close, accrual-basis businesses have a valuable opportunity to optimize their tax position. Strategic timing of income and expenses can significantly impact your 2025 tax liability, especially if you anticipate changes in your tax bracket next year.

Forecasting Income and Expenses

Start by projecting your business income for both 2025 and 2026. If you expect to be in a higher tax bracket next year, it may be advantageous to accelerate income into 2025 and defer deductible expenses into 2026. Conversely, if your tax rate remains stable or decreases, deferring income and accelerating deductions into 2025 can reduce your current-year tax burden.

Recognizing Incurred Expenses

Accrual-basis taxpayers can deduct expenses incurred in 2025, even if they won’t be paid until 2026, provided they meet the IRS’s “all events tests.” Eligible expenses include:

• Commissions, salaries, and wages
• Payroll taxes
• Advertising and marketing costs
• Interest and utility bills
• Insurance premiums
• Property taxes

Additionally, expenses charged to a credit card in 2025 may be deductible even if the payment is made in 2026. This strategy is also available to cash-basis taxpayers.

Managing Prepaid Expenses

Review your prepaid expense accounts and write off any items that have been consumed by year-end. If you prepay insurance that spans 2025 and 2026, you may be able to deduct the full amount in 2025, assuming you’ve made the appropriate method election.

Additional Planning Tips

• Bad Debt Write-Offs: Evaluate your accounts receivable and write off any debts that are clearly uncollectible.
• Shareholder Loans: Ensure interest payments on shareholder loans are made and properly documented.
• Bonus Deductions: Consider revising bonus plans to eliminate contingencies that could delay deductibility. Strategies like fixed bonus pools or minimum bonus thresholds can help meet IRS requirements for accelerated deductions.

Final Thoughts

Effective year-end tax planning requires a proactive approach. By aligning your accounting methods, expense recognition, and income timing with current tax laws, you can reduce your 2025 tax liability and position your business for a stronger financial future.