Year-End Tax Planning Checklist for Connecticut Business Owners (2026)

October is when smart business owners stop guessing about their tax bill. The moves you make before December 31 — not next April — determine how much of 2026's income you keep.

1. Decide on equipment purchases now — Section 179 and 100% bonus depreciation

2026 is an unusually good year to buy equipment you genuinely need. The One Big Beautiful Bill Act (signed July 2025) permanently restored 100% bonus depreciation for qualifying property acquired after January 19, 2025, and raised the Section 179 expensing limit to $2,560,000 for 2026 (phasing out above $4,090,000 in total purchases, per IRS Revenue Procedure 2025-32).

And never buy equipment you do not need just for the deduction — a smaller tax bill plus a cash-flow hole is not a win.

2. Make your Connecticut pass-through entity tax (PET) election decision

Connecticut's pass-through entity tax has been elective — not mandatory — since 2024. Each S corporation, partnership, and multi-member LLC taxed as a pass-through must decide every year whether to opt in. (If you are unsure how your LLC is taxed, start with our guide on how LLCs are actually taxed.)

Why it matters: the entity pays tax at 6.99% on its Connecticut-source income, and individual owners get a Connecticut personal income tax credit equal to 87.5% of the tax paid. For many owners, electing means the state tax is effectively deducted at the federal level while the credit wipes out most of the Connecticut personal tax on that income. The election is made on Form CT-1065 or CT-1120SI, no later than the return's due date including extensions.

Two warnings: if your required annual PET payment is $1,000 or more, you must make quarterly estimated payments (April 15, June 15, September 15, January 15) or face interest charges; and Connecticut reinstated composite-tax filing for nonresident members, so multi-state ownership needs a second look. Run the numbers with your preparer before year-end — this is one of the highest-dollar decisions a Connecticut business owner makes.

3. Fund retirement accounts before the deadlines that actually close

For an owner with strong 2026 income, maxing the employee deferral is one of the simplest legitimate ways to cut this year's taxable income — but the December 31 deadline for Solo 401(k) deferrals is a hard wall, unlike the employer contribution.

4. Check where you land against the QBI deduction thresholds

The 20% qualified business income deduction (§199A) starts phasing out at $201,750 of taxable income (single) / $403,500 (joint) for 2026. If you are near the line, year-end moves — retirement contributions, timing a bonus, harvesting a loss — can keep you under it and preserve the full deduction. Specified service businesses (health, law, consulting, accounting, and similar) lose the deduction entirely above the top of the phaseout range, so this check matters most for them.

5. True-up estimated taxes — the January 15 payment is part of 2026

Your fourth-quarter federal and Connecticut estimated payments are due January 15, 2027, and they count toward tax year 2026. If 2026 income ran hotter than expected, increase that payment now to avoid underpayment penalties. Connecticut charges interest on underpaid estimates, and the federal penalty is not deductible. A quick projection in November beats a surprise in April — see our tax filing deadlines guide for the full calendar.

6. Time income and expenses (cash-basis businesses)

Cash-basis businesses can legitimately shift taxable income: delay December invoices into January to defer income, or prepay January expenses — rent, insurance, supplies, professional fees — in December to accelerate deductions. The 12-month rule lets you deduct prepaid expenses covering up to a year. Do not prepay just to prepay — match it to real cash needs.

7. Clean up payroll and contractor paperwork before January

Year-end bonuses are deductible in 2026 only if actually or constructively paid by December 31. Collect W-9s from every contractor you paid $600 or more before you need to file Form 1099-NEC by February 1, 2027 (January 31 falls on a Sunday). And reconcile payroll now: Connecticut unemployment insurance filings and W-2 totals should tie to your books before January, not during it.

8. Write off what 2026 already cost you

Review accounts receivable and write off genuinely uncollectible bad debts before year-end — you cannot deduct them next year against this year's income. Same for obsolete inventory and dead fixed assets still on the depreciation schedule. Document each write-off; "it felt worthless" is not substantiation.

9. Know the new-for-2026 federal items

• SALT cap is now $40,000 (for MAGI under $500,000) — relevant if you itemize, and worth weighing alongside the PET election analysis above.
• Child Tax Credit is $2,200 per qualifying child, now permanent.
• New deductions for qualified overtime pay and tips took effect — if you pay hourly staff overtime, make sure payroll records track it separately.
• Standard deduction: $16,100 single / $32,200 joint / $24,150 head of household — most owners will not itemize, which makes above-the-line moves (retirement, HSA, business deductions) relatively more valuable.

10. Fix your records while the year is still open

Reconstruct nothing in April that you can record today: mileage log, home-office measurements, meal receipts with the business purpose noted, asset purchase dates and placed-in-service dates. Our tax document checklist is a good starting template. Clean books are what turn every item above from a guess into a deduction your preparer can defend — and if you are self-employed, review our self-employment tax basics so the full picture is covered.

Eagle Expert Services provides tax preparation, accounting, and business licensing services in Middlebury, Connecticut. This article is general information, not tax advice — talk to a qualified professional about your situation.