Year-End Strategies for Accrual-Basis Businesses
Posted by Douglas Muth on November 03, 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.
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Doug is a partner in Lumsden McCormick’s accounting and auditing department and has been with the Firm since 2008. Prior to joining the Firm, he worked at KPMG for three years. Doug is responsible for the supervision of staff and planning and completion of client engagements including audits, reviews, compilations, and other bookkeeping and consulting engagements. He has prepared financial statements, coordinated and reviewed work performed by internal auditors, and presented audit findings to management and boards. Doug has experience providing services to financial institutions, workers’ compensation trusts, employee benefit plans, and other commercial businesses, including those in manufacturing, construction, and general service industries. Additionally, he has experience working on SEC engagements. Doug is a member of the Firm’s recruiting team and chairs the Firm’s Accounting & Auditing Technical Committee.