Year-end tax planning for private practice owners in 2026

For a practice owner on the cash basis, most of the decisions that change the 2026 tax bill have to be made by December 31, 2026, because the cash method counts income when it is received and expenses when they are paid. Equipment counts in the year it is placed in service, and an S corporation owner’s salary counts in the year the paycheck goes out. A smaller group of items carries into 2027, including the fourth estimated payment, the W-2s and 1099s for the year, and some retirement contributions that can wait for the return. Much of year-end planning is sorting each decision into the right group while there is still time to act on the first one.

This post covers the tax side for therapists and counselors, psychologists, speech-language pathologists, physical therapists, optometrists, dentists, veterinarians, and similar practices run as sole proprietorships, single-member LLCs, or S corporations. The books side, meaning a clean close so these decisions rest on real numbers, is covered by our affiliated bookkeeping company, bookkeepz, LLC, in its companion post on year-end bookkeeping.

What has to happen by December 31, and what can wait

The dates below assume a calendar tax year, and each item is explained further down.

The fourth estimated payment and the safe harbor

The fourth federal estimated tax payment for 2026 is due Friday, January 15, 2027. Under section 6654(d), the installments that keep you clear of the underpayment penalty are based on the lesser of 90 percent of the tax on your 2026 return or 100 percent of the tax on your 2025 return (if that return covered a full 12 months), and the 100 percent becomes 110 percent when the adjusted gross income on the 2025 return was more than $150,000, or $75,000 for married filing separately. The 2026 Form 1040-ES instructions apply the same percentages.

December is the time to compare what has been paid against that target. A sole proprietor who is behind can make the January payment larger, but under section 6654(b) the penalty on each installment runs from that installment’s own due date until the shortfall is paid, so a bigger January payment stops the penalty on a June or September shortfall without undoing what has already run. S corporation owners have another option. Section 6654(g) treats income tax withheld from wages as paid in equal parts on each installment due date unless you show the actual withholding dates, so extra withholding on the owner’s last 2026 paychecks reaches back across the whole year. The 2026 Form 1040-ES instructions also say you do not have to make the January 15 payment if you file your 2026 return by February 1, 2027 and pay the entire balance with it, which only helps if the return can be finished that early. The rules in more depth are in our post on quarterly estimated taxes.

S corporation owners and the last payroll of the year

An S corporation owner’s salary for 2026 is what the corporation actually pays through payroll in 2026. The IRS instructions for the 2026 Form W-2 say the form is based on wages paid during the calendar year, and their own example puts wages for a December 13 through December 26, 2026 pay period that are paid on January 1, 2027 on the 2027 form. If the owner’s salary for the year is below what the reasonable compensation analysis supports, the correction has to be a payroll that pays out by December 31. How to set the number is in our post on salary for clinician-owners, and the general standard is in our post on reasonable compensation.

Health insurance for the owner rides on the same payroll. Premiums an S corporation pays for a shareholder-employee who owns more than 2 percent on any day of the year, counting stock attributed from family members under section 318, are reported as wages in box 1 of that shareholder’s W-2, and they are not subject to Social Security and Medicare tax when paid under a plan that covers all employees or a class of them. The IRS says that for the owner to take the self-employed health insurance deduction, the premiums must ultimately be paid by the S corporation and reported as taxable compensation on the shareholder’s W-2. That makes the 2026 premium total, including any months the owner paid personally and the corporation reimburses by December 31, 2026, a number the payroll provider needs before it produces the 2026 W-2. The details are in our post on health insurance for S corporation owners.

Expenses the owner paid personally during the year, such as the business share of a home office, mileage, and license renewals, can be reimbursed by the corporation under an accountable plan that meets Treasury Regulation section 1.62-2. The plan works best when the owner submits receipts within 60 days of each expense, one of the regulation’s safe harbors for a reasonable period, rather than once a year. Amounts paid under an accountable plan are left off the owner’s W-2 and are exempt from payroll taxes and withholding, and a reimbursement paid by December 31 is a 2026 expense for a cash-basis corporation, since the cash method generally deducts expenses in the year they are paid. How to set the plan up so it holds is in our post on accountable plans.

Retirement plan deadlines that are real, and ones that can wait

Retirement plan deadlines depend on the type of plan and on which part of the contribution you mean. A SEP-IRA is the most forgiving. IRS Publication 560 and the IRS’s SEP plan page say a SEP can be set up for a year as late as the due date of the business’s return, including extensions, and that contributions can be made up to that same date, so a SEP decision can wait until the return is being prepared.

A 401(k) is different for the part the owner contributes as an employee. For a sole proprietor, Publication 560 says the owner’s elective deferrals must be elected by the end of the tax year, although the money itself can go in later, by the filing deadline including extensions. An S corporation owner does not get that extra time, because the IRS bases a shareholder-employee’s deferrals on Form W-2 pay and Treasury Regulation section 1.401(k)-1(a)(3)(iii) allows a deferral election only on pay not yet made available. A 2026 deferral therefore has to be withheld from a paycheck the corporation pays by December 31, 2026, and it is reported on the W-2 in box 12 with code D. The 2026 limit on elective deferrals is $24,500 before any catch-up contribution. Sole proprietors have one more option. Under Publication 560, a sole proprietor with no employees can adopt a new 401(k) after the year ends, as long as it is adopted by the filing deadline without extensions, and when the owner is the only participant, elective deferrals paid in before that deadline are treated as made by the end of the plan’s first year. Under section 401(b)(2), any employer, including an S corporation, can also adopt a new profit-sharing plan or 401(k) after the year ends and elect to treat it as adopted on December 31, 2026, if it is adopted by the return due date including extensions. Outside the sole proprietor exception, that route covers employer contributions only, not 2026 salary deferrals. Which plan suits which practice is covered in our post comparing a solo 401(k) and a SEP-IRA.

Equipment counts when it is placed in service

Buying equipment in December produces a 2026 deduction only if the equipment is also placed in service in 2026. IRS Publication 946 says property is placed in service when it is ready and available for a specific use, even if you are not yet using it. Equipment that has been paid for but is still waiting on delivery or installation on December 31 generally has not been placed in service in 2026.

For qualified property acquired and placed in service after January 19, 2025, P.L. 119-21 provided a permanent 100 percent bonus depreciation deduction under section 168(k), as IRS Notice 2026-11 describes. Publication 946 says the 100 percent allowance applies unless you elect out, and the election out is made for an entire class of property. Section 179 expensing is the other route. Under Rev. Proc. 2025-32, for tax years beginning in 2026 the section 179 limit is $2,560,000, reduced dollar for dollar once the cost of section 179 property placed in service during the year exceeds $4,090,000. Publication 946 adds a business income limit, so the section 179 deduction cannot exceed taxable income from the active conduct of a trade or business, and any excess is carried forward. When choosing between the two, the business income limit and the state return are the two things to check.

State returns do not always follow the federal deduction. North Carolina, where this firm is based, is an example. Under G.S. 105-153.6, which still applies for 2026, a taxpayer must add back 85 percent of federal bonus depreciation and may then deduct 20 percent of that add-back in each of the first five years that follow. The same statute sets North Carolina’s own section 179 limits, a $25,000 dollar limit and a $200,000 investment limit, with an 85 percent add-back of the federal deduction above those limits, recovered the same way. A large federal deduction can leave a meaningful state balance, which is better known before the purchase than after it.

Timing income and expenses on the cash basis

A cash-basis practice reports income when it is actually or constructively received. Under Treasury Regulation section 1.451-2(a), income is constructively received when it is credited to your account, set apart for you, or otherwise made available so that you could draw on it, and Publication 538 adds that you cannot hold checks or postpone taking possession of a payment to push the income into the next year. An insurance payment deposited to the practice’s account on December 30 is 2026 income even if nobody records it until January. Most of what a practice can legitimately move is on the expense side.

Expenses are generally deductible in the year they are paid, with a limit on paying ahead. Under the 12-month rule in Treasury Regulation section 1.263(a)-4(f), a prepayment can be deducted when paid only if the benefit it buys does not extend beyond the earlier of 12 months after the benefit begins or the end of the tax year after the year of payment. A one-year malpractice or liability policy paid in December 2026 that runs from January 1 through December 31, 2027 fits within both limits. The regulation’s own example shows that a one-year policy paid in December and starting February 1 of the following year does not, because it runs past the end of that following year. Publication 538 also says that a practice that has not been applying the 12-month rule needs IRS approval, through a change in accounting method, before it starts.

Moving a deduction into 2026 shifts it rather than creating it, so it is worth doing when 2026 income will be taxed at a higher rate than 2027 income, or when it brings taxable income under a threshold such as the one for the qualified business income deduction described below.

The SALT cap and pass-through entity tax elections

P.L. 119-21 raised the cap on the itemized deduction for state and local taxes. Under section 164(b)(7), the cap for tax years beginning in 2026 is $40,400, or half that for married filing separately. It is reduced by 30 percent of modified adjusted gross income above $505,000 (half that threshold for married filing separately), and the reduction cannot take it below $10,000 ($5,000 for married filing separately). In a hypothetical case, an owner with modified adjusted gross income of $555,000 is $50,000 over the threshold, so the cap falls by $15,000, to $25,400. The statute returns the cap to $10,000 ($5,000 for married filing separately) for tax years beginning after 2029.

For an owner whose state income tax runs past the cap, the entity matters. In IRS Notice 2020-75, the Treasury Department and the IRS said that income tax a partnership or S corporation pays to a state on its own income is deductible by the entity for the year the payment is made, and is not taken into account in applying the SALT limit to its owners. The notice covers partnerships and S corporations, so a sole proprietorship, or a single-member LLC taxed as one, is outside it. Because the entity deducts the payment in the year it is made, a payment made by December 31, 2026 is the one that counts on the 2026 federal return.

State elections, deadlines, and payment rules differ from one state to the next. In North Carolina, the Department of Revenue’s 2025 Personal Taxes Bulletin says the taxed pass-through entity election is made on the entity’s timely filed North Carolina return, by its due date including extensions, and that an election made on a late-filed return is not valid. The same bulletin says a taxed pass-through entity that expects at least $500 of North Carolina income tax is generally required to make estimated payments, with the fourth installment for a calendar-year entity due December 15. Under G.S. 105-163.39(d), that requirement does not apply for a year in which the entity was not a taxed pass-through entity the year before, so an entity electing for the first time for 2026 owes no December 15 installment, although a payment it wants deducted on its 2026 federal return still has to be made by December 31, 2026. Whether an election pays off depends on the owners’ own state and federal positions, so it is a decision to rerun each year rather than carry forward.

The qualified business income deduction for a health practice

P.L. 119-21 made the section 199A deduction permanent. Before the change, section 199A(i) said the section would not apply to tax years beginning after December 31, 2025, and section 70105 of the act replaced that subsection with a new minimum deduction. Health practices still face the specified service limits. Treasury Regulation section 1.199A-5(b)(2)(ii) defines services in the field of health to include medical services by physicians, pharmacists, nurses, dentists, veterinarians, physical therapists, psychologists, and other similar healthcare professionals, so for a health practice the deduction depends on the owner’s taxable income.

Rev. Proc. 2025-32 sets the 2026 figures. The threshold is $201,750 of taxable income ($201,775 for married filing separately), or $403,500 on a joint return, and the phase-in range ends at $276,750 ($276,775 for married filing separately), or $553,500 for a joint return. P.L. 119-21 widened that range from $50,000 to $75,000, and from $100,000 to $150,000 for joint returns. Below the threshold the specified service limits do not apply; within the range the deduction is phased down; and above it a specified service business is not a qualified trade or business at all, so its income produces no deduction. For an owner whose taxable income sits near the range, a deductible retirement contribution or a prepaid expense can change the deduction itself. For an S corporation owner, the salary is not qualified business income, which is one reason the salary and the deduction are planned together.

W-2s and 1099s are due February 1

Forms W-2 and 1099-NEC for 2026 are both due Monday, February 1, 2027, because January 31 falls on a Sunday. The 2026 W-2 instructions give that date for filing with the Social Security Administration and for furnishing copies to employees, and the 1099 instructions require the 1099-NEC to be filed with the IRS and furnished to the recipient by January 31, moving to the next business day when that date falls on a weekend. For payments made in 2026, P.L. 119-21 raised the 1099-NEC reporting threshold from $600 to $2,000, so a contractor paid $1,800 during 2026 does not need a 1099-NEC for the year unless backup withholding was taken. Payments to a corporation are generally exempt, but the instructions say that exemption does not apply to payments for medical or health care services provided by corporations, including professional corporations, which are reported in box 6 of Form 1099-MISC. December is a good time to collect a Form W-9 from every contractor who will need a form. The classification question behind those forms is in our post on W-2 and 1099 clinicians.

Where we help

Year-end planning is part of every private practice engagement and of our tax planning work. A review works best in November or early December, before the deadlines in the table above, so that salary, equipment, retirement contributions, and any state entity-level election are decided with the year’s actual results in view. The entity side is on our S corporation page and the personal return on our individual tax page, and our pages for therapy practices, psychologists, speech-language pathologists, physical therapists, optometrists, dentists, and veterinarians cover what is different about each. If you want a year-end review before December 31, book a consultation.

This post covers federal tax rules and selected North Carolina rules for tax year 2026 as general information. It is not advice for your situation, and figures that are adjusted for inflation change each year.

• Tax planning
• Private practice
• Year end