Year-End Tax Timing Moves That Matter

Key Takeaways:

Businesses can defer income or accelerate deductions through method changes, elections, and smart year-end actions.

Reverse planning — accelerating income or deferring deductions — can also support tax goals or preserve attributes.

Year-end planning affects not just taxable income, but also other provisions like AMT, interest expense, and R&D treatment.

—

As 2026 draws to a close, private companies have a narrow window to influence their tax outcomes through one of the most flexible — and underutilized — tools available: timing. While much attention goes to deductions like bonus depreciation or new research rules, it’s the timing of income recognition and expense deductions that often drive year-end strategy.

With the One Big Beautiful Bill Act (OBBBA) introducing new elections and limitations across various provisions, year-end becomes a critical checkpoint to improve income, expense, and method changes.

Why Timing Still Matters

At the core, tax timing strategies aim too either:

Defer income to reduce current tax liability and preserve cash flow; or

Accelerate deductions to achieve the same effect by pulling allowable expenses into the current year.

But in some cases — particularly when tax rates, limitations, or attributes are changing — companies may benefit from doing the opposite:

Accelerate income into the current year to use expiring tax attributes, or

Defer deductions to apply when income is expected to increase.

These choices don’t happen in a vacuum. The right move depends on modeling and how other tax rules interact — including Section 163(j) interest limits, alternative minimum tax (AMT) exposure, research and development (R&D) capitalization, and state conformity.

Common Year-End Opportunities

The IRS allows companies to change accounting methods to better reflect income and expense timing — subject to specific procedures. Many of these changes can still be made automatically by filing Form 3115 with your 2026 return (or in advance for non-automatic changes). Common areas include:

1. Advance Payments

Taxpayers can elect to defer a portion of advance payments for goods, services, or software to the following year if certain criteria are met.

2. Recurring Liabilities

Some expenses, like taxes, rebates, or warranties, may be deducted before payment using the “recurring item exception” if properly structured.

3. Accrued Bonuses

Bonuses may be deducted in 2026 if they are fixed and determinable by year-end (even if paid in early 2027) so long as plan terms are compliant and bonuses aren’t forfeitable.

4. Prepaid Expenses

Under the “12-month rule”, certain prepayments (insurance, licenses, service contracts) can be deducted in the year paid if they don’t extend beyond the next 12 months.

5. Inventory Write-Downs

Businesses may take deductions for obsolete or subnormal inventory disposed of or written down before year-end (provided documentation is in place).

6. Casualty or Abandonment Losses

Companies can recognize losses on property abandoned or damaged during the year — even if not insured — if supporting evidence is available.

This graphic shows common areas the IRS allows companies to change accounting methods to better reflect income and expense timing.

Reverse Planning Has Its Place

Not every business wants to push income into future years. Some situations call for the opposite approach:

Using net operating losses (NOLs) before they expire or are limited

Minimizing the impact of upcoming interest expense limits

Avoiding higher AMT exposure under new provisions

Managing thresholds for deductions, credits, or the 199A pass-through deduction

In these cases, companies may accelerate revenue into 2026 or defer expenses to preserve them for future high-income years. Common methods include:

Changing recognition policies for advance payments

Delaying recurring liability elections

Deferring bonus payments or accruals into the following year

Table showing objective and strategy for deferring or accelerating expenses

The Clock Is Ticking for Non-Automatic Changes

While many method changes can be made by filing the tax return, others — known as non-automatic changes — must be submitted before year-end. This includes:

Changes already made within the past five years

Some depreciation classification corrections

Certain method changes related to research and experimentation (R&E) costs or long-term contracts

Companies under the IRS exam may have additional restrictions, so timing and coordination are essential.

Coordinate with Other Provisions

Accounting method changes, and year-end timing moves don’t just affect taxable income. They can ripple through other provisions, including:

Interest deduction under Section 163(j): Lower taxable income may reduce deductible interest.

R&D treatment under Section 174: Electing capitalization or deduction affects timing and income.

AMT and base erosion tax thresholds: Strategic timing may avoid triggering additional taxes.

State conformity rules: States may not follow federal timing rules, affecting deductions and NOLs.

A single method change could affect your federal, state, and international posture — and multiple method changes may need to be coordinated in a single Form 3115.

Making Tax Timing Work for You

Tax timing isn’t just a year-end clean-up task, it’s a forward-looking lever that can influence broader tax planning outcomes. By reviewing recognition methods, expense timing, and elections before December closes, your business can gain flexibility it won’t have come filing season.

MGO works with companies to assess timing-related strategies that align with shifting income levels, upcoming transactions, or changes in the law. From reviewing bonus structures and recurring expenses to managing method changes, our team offers the insight needed to act while it still counts.