As Mitch Kramer, MBA, CFP®, Founder & CEO of Fluent Financial, often reminds clients:
“The fourth quarter is where you decide whether you’re writing a big check to the IRS or keeping those dollars working for you.”
As the year winds down, business owners have a valuable window to make strategic decisions that can reduce taxes, strengthen retirement savings, and improve cash flow heading into 2026. The key is to act now—before the calendar year closes.
Here’s an expanded checklist to help you finish Q4 strong.
If your company had a profitable year and you’re looking for meaningful deductions, a cash balance or defined-benefit (DB) plan could be one of the most powerful tools available.
These plans combine the large contribution potential of a traditional pension with the flexibility of a 401(k). Depending on your age and income, owners in their 40s–60s may be able to contribute up to $400,000 pre-tax, potentially cutting their tax bill by six figures.
Unlike older pension models that required large staff contributions, today’s modern plans can limit employee funding to roughly 7.5% of pay while allowing significantly higher owner contributions. That structure makes them especially appealing for closely held or professional-service firms—such as medical practices, law firms, or consulting groups—where owners earn considerably more than staff.
The funds you contribute grow tax-deferred, helping you accelerate retirement savings while taking advantage of current-year deductions.
Action:
Talk with your CPA and a third-party plan administrator early in Q4. These plans must be formally established before December 31 to qualify for 2025 tax treatment. Implementation takes time—so don’t wait until the holidays to get started.
Many investors don’t realize that mutual funds can create unexpected tax liabilities near year-end. Even in years when your account value declines, funds often distribute capital gains in November or December, and you’ll owe tax on your share—whether you’ve been invested for years or just bought in last week.
This can come as an unwelcome surprise, especially in volatile markets. Those distributions can be large enough to push your taxable income higher or even affect deductions and credits.
One solution is to review your holdings before fund companies declare distributions, typically in late November. If a fund is expected to make a large payout, you might consider selling it before the ex-dividend date to avoid the taxable event.
Exchange-traded funds (ETFs) and individual securities typically don’t carry the same problem because of their structure, making them a more tax-efficient choice for many investors.
Action:
Ask your financial advisor to identify which funds in your portfolio are likely to distribute gains. Consider whether it makes sense to switch to ETFs or more tax-efficient investments before the distribution date.
Market volatility isn’t always a bad thing—it can create opportunities to harvest tax losses. By selling investments that have declined in value, you can use those realized losses to offset capital gains from other sales or even reduce up to $3,000 of ordinary income.
This strategy can meaningfully reduce your tax bill while positioning your portfolio for future growth. For example, if you’ve sold a business asset or real estate for a gain, harvesting losses elsewhere can help neutralize the tax impact.
To maintain market exposure, you can reinvest in a similar—but not identical—security, such as a fund tracking a comparable index or sector. Just be careful to avoid the wash-sale rule, which disallows losses if you buy back the same or “substantially identical” security within 30 days before or after the sale.
Beyond the tax savings, this process forces a disciplined review of underperforming holdings and aligns your investments with current goals.
Action:
Review your realized gains year-to-date and coordinate trades with your CPA or advisor before year-end. If you’ve had a strong year elsewhere, these harvested losses can be especially valuable.
Retirement-plan contributions are one of the most straightforward and reliable ways to reduce taxable income—but the deadlines are firm.
For 401(k), 403(b), and SIMPLE plans, employee salary deferrals must be deposited into the plan by December 31. Employer contributions may sometimes be made later, but the election to defer must occur before year-end.
For 2025, the 401(k) deferral limit is $23,000, with an additional $7,500 catch-up contribution for those age 50 and older. Ensuring you (and eligible employees) have maximized these contributions before the final payroll run can make a meaningful difference in both your taxes and retirement savings trajectory.
In some cases, business owners may layer on profit-sharing contributions or even pair a 401(k) with a cash balance plan for greater flexibility and tax impact.
Action:
Confirm your deferral elections and verify that your final payroll deposits will be processed correctly and on time. For business owners with multiple entities or variable income, coordinate across accounts to avoid missed opportunities or over-contributions.
After a volatile or uneven market year, it’s common for portfolios to drift away from their intended allocations. That’s why Q4 is an ideal time to rebalance—systematically selling assets that have grown beyond their target weight and buying those that have lagged.
Rebalancing helps you lock in gains, maintain discipline, and manage risk heading into a new year. It also pairs effectively with tax-loss harvesting, since both involve strategic trades.
Additionally, review your cash reserves and liquidity needs for the coming months. If you expect to fund a retirement plan, pay Q1 estimated taxes, or reinvest in your business, ensure those funds are accessible without disrupting your long-term investments.
Action:
Use this window to realign your portfolio, confirm your risk tolerance, and set cash targets for early 2026. A year-end review ensures your investment strategy supports both your tax goals and your overall financial plan.
Even the best strategies lose impact without coordination. Before the holidays, schedule a short year-end planning session with your CPA and financial advisor to ensure all moving parts align.
Together, review:
Some contributions (like cash balance or profit-sharing plans) can be funded after December 31, but you’ll need the plan established beforehand to claim the deduction. A 30-minute check-in can prevent costly surprises and ensure nothing falls through the cracks.
Action:
Run a quick year-end projection including deductions, harvested losses, and planned contributions. Confirm which actions must be completed before December 31 and which can extend into early 2026.
Thoughtful planning in Q4 may help business owners identify opportunities for tax efficiency and retirement readiness. Every situation is unique, and outcomes depend on individual circumstances. This communication is for informational purposes only and does not constitute a recommendation or guarantee of results.
If you’d like to model these strategies and understand what they mean for your business, Fluent Financial can help you build a personalized, year-end plan that’s clear, compliant, and effective—so you can enter 2026 confident and prepared.
Disclaimer: This material is for informational purposes only and not tax, legal, or investment advice. Consult your CPA and advisor before taking action.