Year-End Tax Moves Worth Starting in September

Most small business owners think of year-end tax planning as a December project. That is too late for some of the most valuable moves available to you. A handful of decisions, including whether to establish a new retirement plan and whether to buy equipment that qualifies for immediate expensing, have deadlines that land in October. By the time you are watching the Lions in December, those windows are closed.

This article walks through the moves that require action in September and October, explains exactly what each deadline means, and tells you what to have ready before you sit down with your CPA.

Why December Is Already Too Late for Some of This

The tax planning calendar most business owners carry in their heads has one key date: December 31. And for many moves, that date is correct. But the problem with treating December 31 as the universal deadline is that it ignores the setup time that several strategies require.

Take retirement plans. The SIMPLE IRA, one of the most practical options for small businesses with employees, must be established by October 1. Not funded by October 1. Established. If you call your financial institution on October 2, you have missed the entire current tax year.

Equipment purchases have a different version of the same problem. The IRS requires that equipment be placed in service, meaning ready and available for business use, before December 31. An order placed in late November may not arrive, get installed, and be operational before the calendar flips, even if you pay for it on time.

And income and expense timing decisions, which can shift meaningful dollars between tax years, depend on banking cycles, payroll schedules, and vendor payment terms that consume weeks of lead time. October decisions execute in November. November decisions sometimes execute in January.

If you worked through the numbers earlier in the year, you are already ahead of most owners. If you did not, September is still enough time to act on most of these moves. December usually is not.

The SIMPLE IRA Deadline Is October 1. That Is Not a Typo.

The SIMPLE IRA (Savings Incentive Match Plan for Employees) is a retirement savings option designed for small businesses. It is easier to administer than a 401(k), allows meaningful contributions, and lets employees contribute their own money alongside employer contributions. For many Michigan small businesses with a handful of employees, it is the right tool.

But it has one unforgiving characteristic: IRS Publication 560 sets a firm October 1 establishment deadline for the current tax year. This is statutory, not an administrative policy that can be waived if you write a nice letter. If the plan documents are not signed before October 1, the plan does not exist for that tax year.

Establishing the plan and funding it are two separate acts with two separate deadlines. Establishing means creating the legal plan document. Funding means actually putting money into employee and employer accounts. For a SIMPLE IRA, employee salary deferrals must be deposited throughout the year as employees earn them, and employer contributions are due by the filing deadline for the business's tax return, including extensions. But none of that matters if you miss October 1 for setup.

The 2024 contribution limits are worth knowing before you make the call. Employee deferrals can reach $16,000 for the year. Participants age 50 and older can contribute an additional $3,500 as a catch-up contribution, under provisions established by the SECURE 2.0 Act. Employer contributions follow a match formula set by the plan.

If you are reading this in September and you do not yet have a retirement plan for your business, the clock is running.

The October 1 deadline for SIMPLE IRA establishment is weeks away. Contact Birchwood Tax & Accounting to schedule a planning conversation before that window closes.

The SEP-IRA Exception: More Time, But You Still Need the Numbers Now

Not every retirement account has an October deadline. The SEP-IRA (Simplified Employee Pension) is a notable exception. The IRS allows business owners to establish and fund a SEP-IRA all the way through the tax filing deadline, including extensions, which means contributions can be made as late as October 15 of the following year for owners who file on extension.

That flexibility is real and valuable, particularly for business owners with uneven income who cannot predict their contribution amount until the year is finished. The SEP-IRA contribution limit is tied to net self-employment income: up to 25 percent of net earnings from self-employment, to a maximum of $69,000 for 2024. You cannot finalize that number until your books are closed.

Here is the catch. Closed books do not happen automatically. They require completed bookkeeping, reconciled accounts, and an accurate picture of net income. Owners who start the bookkeeping process in September have the data they need to make an informed contribution decision by February or March. Owners who wait until April are racing their extension deadline and often underfunding the account by guessing conservatively.

If your income varies significantly from month to month, the SEP-IRA's extended deadline is a genuine advantage. But capturing that advantage requires clean numbers, and clean numbers require starting the process now.

Equipment Purchases: 'Placed in Service' Means Running, Not Ordered

Section 179 of the tax code allows a business to deduct the full cost of qualifying equipment in the year it is purchased, rather than depreciating it over several years. The 2024 deduction limit is $1,220,000, with the deduction phasing out dollar-for-dollar once total equipment purchases exceed $3,050,000. For most small businesses, those thresholds are not the constraint.

The constraint is the placed-in-service rule. The IRS requires that the equipment be ready and available for its intended business use before December 31. Not ordered. Not paid for. Not sitting in a crate on a loading dock. Ready to use.

Bonus depreciation works under the same rule and adds a second layer of context worth knowing. For 2024, bonus depreciation is 60 percent of the cost of qualifying property, down from 80 percent in 2023. The Tax Cuts and Jobs Act established a phasedown schedule that reduces this percentage each year, so the urgency of placing equipment in service before year-end is real in a way it was not a few years ago when the rate was 100 percent.

The logistics problem is straightforward. An owner who orders a piece of equipment in late November is betting that it will be delivered, installed, tested, and operational before December 31. For standard off-the-shelf equipment, that bet sometimes pays off. For custom fabrication, specialized machinery, or anything requiring a contractor to install, the odds are not good. Equipment ordered in September or October gives you weeks of buffer against shipping delays, backordered parts, and scheduling problems with installation crews.

If you plan to claim Section 179 on a purchase, document the placed-in-service date carefully. Keep the delivery receipt, the installation completion record, and any commissioning checklist showing the equipment was operational. That documentation defends the deduction if the IRS asks. This is also a good moment to confirm that your vehicle and home office deductions that need to be documented before year-end are in order, since the same documentation discipline applies.

Income and Expense Timing for Cash-Basis Businesses

About 80 percent of small businesses in the United States use the cash method of accounting, meaning they record income when they receive payment and record expenses when they pay them. If your business works this way, you have a legitimate, IRS-recognized tool for shifting income and expenses between tax years.

The mechanics are not complicated. Income deferral means holding invoices so that your clients pay in January rather than December. If you are a contractor who finishes a job on December 20 and sends the invoice that day, the payment typically arrives before year-end and becomes current-year taxable income. Send the invoice on January 2 and the payment lands in January, deferring that income to next year. This is not a trick. It is the natural consequence of how cash-basis accounting works.

Expense acceleration runs in the other direction. Prepaying deductible business expenses, scheduling vendor payments in December rather than January, and timing payroll runs so that a pay period falls within the current year all pull deductions into the current tax year. These moves reduce current-year taxable income at the cost of reducing next year's deductions by the same amount, so they make sense when your current year is more profitable than you expect next year to be.

Here is the logistics reality that makes September the right month to think about this: banking transfers take one to three business days. Payroll processors typically require five to seven business days of lead time to add or change a payroll run. Vendor payment terms range from net-10 to net-30. By the time you are looking at a December 15 calendar, many of these levers have already been pulled by default.

This kind of income-timing analysis also connects naturally to larger structural questions, like whether an S-corp election still makes sense for your situation, since the entity structure you operate under affects which timing strategies are available to you. If you are on the accrual method, by contrast, the timing rules are different and these particular moves do not apply in the same way. The IRS draws this distinction clearly in Publication 538. Accrual-basis businesses record income when earned and expenses when incurred, regardless of when cash changes hands.

The January 15 Estimated Payment: Plan It in September, Not January

The fourth quarterly estimated tax payment covers income earned from September 1 through December 31 and is due January 15. For self-employed business owners, this is often the largest of the four payments, because it lands after the year-end decisions have been made but before the annual return is filed.

The size of that payment depends directly on the decisions you make in the fall. If you establish a retirement plan and contribute in October, that contribution reduces taxable income and reduces the Q4 payment. If you place a piece of equipment in service in November and take Section 179, that deduction has the same effect. If you defer significant income into January, same story. Every planning move made before December 31 flows through to the January 15 check.

The IRS safe harbor rule is relevant here. You avoid underpayment penalties if your total estimated payments equal at least 100 percent of the prior year's tax liability. If your adjusted gross income exceeded $150,000 in the prior year, the threshold rises to 110 percent. Knowing that number in September tells you something useful: whether you are already covered against penalties or whether you need to make a larger Q4 payment regardless of what deductions you take.

The safe harbor is a floor, not a ceiling. Hitting it protects you from penalties, but it does not minimize the tax you actually owe. A business owner who earned significantly more this year than last, made no deductions, and paid exactly 110 percent of the prior year's liability will owe a substantial balance in April. That is legal. It is also a cash-flow surprise that careful September planning could have reduced or eliminated.

For a more detailed look at calculating your Q4 estimated payment, including how Michigan state payments interact with the federal schedule, that article walks through the math in full.

What to Have Ready Before Your September Planning Meeting

A planning conversation is only as useful as the information going into it. The following list is not exhaustive, but it is specific enough to be actionable. Gathering these items before you sit down with your CPA is the difference between a productive planning session and an expensive update call two weeks later.

Financial data:

• Year-to-date profit and loss statement through the most recent month
• Balance sheet as of the same date
• A rough projection of revenue and expenses for October through December
• Prior year's tax return (federal and Michigan), particularly the total tax liability line

Retirement plan status:

• Whether you currently have a business retirement plan, and which type
• Whether you are considering adding or changing a plan for 2024
• Names and ages of any employees who would participate

Equipment and capital purchases:

• A list of any equipment purchases made or planned for the remainder of the year, with expected delivery and installation dates
• Documentation of placed-in-service dates for anything already acquired

Income and timing items:

• Outstanding invoices you have not yet sent
• Significant vendor payments or expenses you have the option to accelerate or delay
• Payroll schedule through year-end

If you worked through the numbers you should have pulled in July, much of this information is already at hand. If not, start with your current income and expense picture and build from there.

The single most useful thing you can do this week: pull your year-to-date profit and loss statement from your accounting software and compare it to the same period last year. If your income is up more than 20 percent, you almost certainly have planning moves worth making before October 1. Send that comparison to your CPA with a note that you want to talk before month-end. That one email is worth more than any amount of December scrambling.

September is the right time to have this conversation. Reach out to Birchwood Tax & Accounting and we will schedule a planning session while the most valuable options are still available to you.