How Small Business Owners Can Prepare for the 2026 Tax Season: A January Playbook
The beginning of a new year brings fresh energy—but for small business owners, it also marks the official countdown to tax season. January is the single most important month for setting yourself up for a smooth, stress-free filing experience. When you get organized early, you avoid last-minute panic, reduce costly mistakes, and create opportunities to strategically lower your tax burden.
This January playbook will walk you through the essential steps to prepare for the 2026 tax season (filing for tax year 2025) with clarity and confidence.
1. Finalize Your 2025 Books
Before you can prepare any tax returns for 2025, you need to properly close out the year. Clean and accurate books for the prior year are essential—they’re the foundation of your tax return and the starting point for all future planning.
Reconcile All Accounts
Reconcile every business bank account, credit card, and loan. Match every transaction in your accounting software to your bank and credit card statements.
This ensures:
No duplicate entries
No missing expenses
No misstated income
Unreconciled accounts often lead to IRS letters and time-consuming corrections later.
Categorize All Transactions
Accurate categorization directly affects your deductions. Review every transaction from 2025 to ensure it’s in the correct category (e.g., office supplies vs. equipment; meals vs. travel; subcontractor vs. employee).
Run a Profit & Loss report to spot:
Uncategorized transactions
Misclassified spending
Negative balances that signal errors
Generate Your Financial Statements
Once your books are cleaned up, create the core reports for 2025:
Profit & Loss Statement – Summarizes income and expenses
Balance Sheet – Shows assets, liabilities, and equity
Cash Flow Statement – Tracks actual cash movement
Your tax preparer will ask for these documents, and they are crucial for accurate filing.
2. Organize All Essential Tax Documents
January is the time to gather, organize, and verify the documents you’ll need for your 2025 filing and your 2026 planning.
Key Documents to Collect
Income documentation: Invoices, sales data, deposit records, and all 2025 Form 1099s you received
Expense documentation: Receipts, statements, mileage logs, subscription invoices
Payroll records: W-2s, W-3 processing confirmations, payroll tax filings, payroll summaries
Asset purchase/sale records: Vehicles, equipment, computers, furniture, improvements
Prior tax returns: Keep the last three years available for reference
Create a single folder—physical or digital—labeled "2025 Tax Documents" so everything stays organized.
3. Review Payroll and Contractor Reporting Requirements
January deadlines come fast—and missing them can lead to penalties.
For Employees
Deadline: January 31
W-2 Forms must be distributed to employees
Form W-3 must be filed with the SSA
For Independent Contractors
Deadline: January 31
You must issue a 1099-NEC to any contractor paid $600 or more in 2025.
Also:
Verify you have completed W-9 forms for every contractor
Track anyone paid electronically (PayPal, Venmo, Zelle)—these still generally require 1099s unless processed through third-party reporting (rules continue to evolve)
4. Identify Tax Deductions and Credits Early
One major advantage of early preparation is giving yourself time to identify deductions you might otherwise overlook.
Common Small Business Deductions
Home office deduction
Vehicle mileage or actual vehicle expenses
Qualified Business Income (QBI) deduction
Business travel
Employee wages and benefits
Startup cost deductions (for newer businesses)
Additional Areas to Review
Consider whether any of the following apply:
Section 179 expensing
Bonus depreciation
Retirement plan contributions (SEP IRA, Solo 401(k), SIMPLE IRAs)
Health insurance premium deductions (especially for self-employed owners)
A tax professional can help you find additional opportunities based on your industry and business model.
5. Decide How You Will File This Year
Your filing strategy matters for both accuracy and tax savings.
DIY Filing
Good for:
Schedule C sole proprietors
Simple, low-transaction businesses
Modern tax software can walk you through the process—but you still need clean books.
Hire a Tax Professional
Recommended for:
LLCs, S corporations, and partnerships
Businesses with payroll
Businesses with assets, inventory, or multiple accounts
Anyone who wants tax planning—not just filing
If you plan to work with a tax professional, book your spot in January. Preparers fill up fast.
6. Plan for the 2026 Tax Year Now
January isn’t just about closing out last year—it’s about building a better year ahead.
Evaluate Your 2025 Results
Your P&L and Balance Sheet can reveal:
Overspending categories
Opportunities for cost reduction
Areas where better tracking could unlock more deductions
Make Adjustments for 2026
Consider:
Implementing a better bookkeeping system
Automating recurring tasks (bank feeds, rules, payroll)
Tracking mileage with an app
Updating your entity structure if you’ve grown significantly
Starting quarterly tax planning instead of annual
A proactive approach saves far more than a reactive one.
Conclusion
Preparing early isn’t just about reducing stress—it’s about running a healthier business. When you finalize last year’s books, organize your documents, and put a plan in place for filing, you position yourself for better decision-making all year long.
Invest the time this January, and your 2026 tax season (filing for 2025) will be smoother, simpler, and significantly more strategic.
Further Reading (Helpful Resources)
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IRS Resources
Helpful Tools
For Texas Business Owners (If Relevant)
From Armstrong Tax & Advisory (Your Own Site)