To reduce your corporate taxable income, you shrink the number on the “taxable income” line of Form 1120 by claiming every legitimate deduction the year allows and, where the calendar lets you, moving income and expenses across the year-end boundary. Every dollar you move out of net profit and into a deduction avoids the flat 21% federal corporate rate.1Office of the Law Revision Counsel. 26 U.S. Code 11 – Tax Imposed The math on Form 1120 is total income minus total deductions, and that difference is what gets taxed.2Internal Revenue Service. U.S. Corporation Income Tax Return Most of the strategies below also work for S corporations and LLCs taxed as partnerships, though pass-through owners face separate caps on how much of a business loss they can personally use in a year.
Accelerate Ordinary Operating Expenses
Advertising, office supplies, professional services, and other everyday costs are fully deductible in the year you pay or incur them, provided they are ordinary and necessary for your trade or business.3Office of the Law Revision Counsel. 26 USC 162 – Trade or Business Expenses Moving planned spending into the current year — running a marketing push in November instead of January — captures the deduction now rather than twelve months later.
Repairs and routine maintenance also count as current-year deductions rather than capital improvements. The IRS draws the line by what the work accomplishes: restoring property to its normal condition is a deductible repair, while adding value or extending useful life is a capital improvement that has to be depreciated.4Internal Revenue Service. Tangible Property Regulations – Frequently Asked Questions Repainting an office and fixing a leaky roof are repairs. Adding a second story is not.
Research and development spending is worth a separate look because the rules just changed. Before 2025, businesses had to capitalize domestic R&D and spread the deduction over five years. The One Big Beautiful Bill Act restored immediate expensing for domestic R&D starting in tax years after December 31, 2024, so qualifying costs are once again fully deductible in the year incurred. Foreign R&D still requires 15-year amortization. Any U.S. product development, process improvement, or software engineering work now feeds directly into a current-year deduction.
Keep invoices, receipts, and proof of payment for anything you plan to deduct. The IRS requires supporting documents that show both the amount paid and the business purpose; proof of payment alone doesn’t establish the deduction.5Internal Revenue Service. Publication 583, Starting a Business and Keeping Records – Section: Recordkeeping
Buy Equipment and Take Section 179 or Bonus Depreciation
Equipment purchases are the largest single-year deduction most companies can generate on demand. Section 179 lets you deduct the full purchase price of qualifying equipment in the year you place it in service instead of depreciating it over its useful life.6Internal Revenue Service. Depreciation Expense Helps Business Owners Keep More Money For 2026, the maximum deduction is approximately $2.56 million, and the benefit begins phasing out once total qualifying purchases for the year exceed roughly $4.09 million. Qualifying property includes machinery, computer hardware, off-the-shelf software, and most tangible business equipment. The asset must be used more than 50% for business.
Bonus depreciation stacks on top of Section 179 and allows a 100% first-year write-off of eligible new or used property. The One Big Beautiful Bill Act made that 100% rate permanent for qualified property acquired after January 19, 2025, reversing the earlier phase-down that had already cut the rate to 60% and then 40%.7Internal Revenue Service. Interim Guidance on Additional First Year Depreciation Deduction Amended as Part of the One, Big, Beautiful Bill For most 2026 equipment purchases, the full cost is deductible immediately.
Between the two provisions, deductions can exceed income and produce a net operating loss. An NOL carries forward indefinitely, but it can only offset up to 80% of taxable income in any future year.8Office of the Law Revision Counsel. 26 U.S. Code 172 – Net Operating Loss Deduction You can’t zero out a future profitable year entirely with prior losses, but the unused portion keeps rolling forward until it’s absorbed.9Internal Revenue Service. Instructions for Form 172
Fund Bonuses and Retirement Contributions
Payroll is usually the largest expense category on the return, and adjusting it near year-end shifts taxable income meaningfully. Year-end bonuses are fully deductible when paid before the fiscal year closes. For accrual-method companies, bonuses can still count against the current year if the total liability is fixed by December 31 and payment goes out within two and a half months after the fiscal year ends.10Internal Revenue Service. Rev. Rul. 2011-29 The IRS looks at whether the company’s obligation to the group of employees was set before year-end; individual bonus amounts can be finalized after that date.
Employer contributions to retirement plans produce another deductible layer. A 401(k) plan allows employer matching and profit-sharing contributions deductible up to 25% of total eligible compensation, with a combined annual limit of $72,000 per participant in 2026, or up to $83,250 for employees aged 60 to 63.11Internal Revenue Service. Retirement Topics – 401(k) and Profit-Sharing Plan Contribution Limits A SEP IRA caps employer contributions at the lesser of 25% of an employee’s compensation or $69,000 for 2026, with no employee salary deferrals allowed.12Internal Revenue Service. SEP Contribution Limits (Including Grandfathered SARSEPs)
Contributions to either plan must be deposited by the corporate tax return due date, including extensions, to apply to the prior tax year.12Internal Revenue Service. SEP Contribution Limits (Including Grandfathered SARSEPs) That gives you several months after year-end to calculate the optimal contribution based on actual profit figures.
Shift the Timing of Income and Expenses
Cash-method companies report income when received and deduct expenses when paid.13Internal Revenue Service. Publication 538, Accounting Periods and Methods That timing rule creates two levers.
The first is delaying invoices near year-end. Send a bill on January 2 instead of December 28 and the payment falls into the next tax year. This postpones tax rather than eliminating it, but it helps when next year’s income looks lower or when you want to spread an unusually profitable year across two returns.
The second is prepaying expenses. Prepaid rent, insurance, or service contracts are deductible in the current year under the 12-month rule, as long as the benefit period doesn’t extend more than 12 months after it begins or beyond the end of the following tax year, whichever comes first.14Internal Revenue Service. Publication 538, Accounting Periods and Methods – Section: Expenses Paid in Advance Pay a 12-month insurance policy on December 1 and the full premium is deductible now even though coverage runs deep into next year.
Watch the estimated-tax side of aggressive income deferral. Corporate estimated payments are due quarterly, and falling short triggers underpayment penalties. The safe harbor requires paying at least 100% of the prior year’s tax liability in quarterly installments or 100% of the current year’s actual tax, whichever is less.15Office of the Law Revision Counsel. 26 U.S. Code 6655 – Failure by Corporation to Pay Estimated Income Tax If you push substantial income into next year, make sure your payments still clear the prior-year threshold.
Write Off Bad Debts and Review Your Inventory Method
Uncollectible receivables produce a deduction the year they go bad. A business bad debt is deductible in the year it becomes wholly or partially worthless, provided the amount was previously included in your income.16Internal Revenue Service. Topic No. 453, Bad Debt Deduction A court judgment isn’t required; reasonable evidence that the debtor can’t or won’t pay is enough. Reviewing outstanding receivables before year-end to flag write-off candidates is worth doing annually if the company extends credit.
Inventory-heavy businesses have a longer-term lever in their cost-flow method. LIFO treats the most recently purchased inventory as the first sold, which produces a higher cost of goods sold and a lower reported profit than FIFO when prices are rising. Switching methods requires IRS approval through Form 3115, so this is a planning move rather than a December decision, but the savings compound across years once the method is in place.
Handle Charitable Contributions Under the New 1% Floor
Donations to qualified 501(c)(3) organizations reduce taxable income, but a new floor applies starting in tax years beginning after 2025. Corporate charitable deductions are now allowed only for the portion of contributions that exceeds 1% of taxable income calculated before the charitable deduction. The 10% ceiling still applies, and contributions above it aren’t deductible in the current year but can carry forward for five years.
The 1% floor is unforgiving on smaller gifts. If your corporation has $500,000 in taxable income and donates $4,000, the floor is $5,000 and none of the $4,000 produces a deduction. Amounts below the floor cannot be carried forward the way excess contributions above the ceiling can; they are permanently lost. Companies making modest annual donations may want to bunch several years’ worth of giving into a single year to clear the floor.
Noncash contributions worth more than $5,000 require a qualified appraisal and Form 8283 attached to the return.17Internal Revenue Service. Charitable Organizations – Substantiating Noncash Contributions For any contribution of $250 or more, you need a written acknowledgment from the organization stating the date, amount, and whether any goods or services were provided in return.18Internal Revenue Service. Publication 526, Charitable Contributions – Section: Substantiation Requirements Missing this documentation voids the deduction entirely.
Stay Inside the Substance and Reasonable-Compensation Rules
Every strategy above is legal when applied to real business activity. Trouble starts when companies manufacture deductions with no economic substance. Federal law requires that a transaction change your economic position in a meaningful way beyond reducing tax, and that you have a legitimate business purpose for entering into it.19Internal Revenue Service. Additional Guidance Under the Codified Economic Substance Doctrine and Related Penalties Transactions failing both prongs lose their tax benefits, and the penalty can reach 40% of the resulting underpayment.
Two areas draw particular scrutiny. Closely held corporations sometimes inflate officer salaries to pull profits out as deductible compensation instead of nondeductible dividends. The IRS weighs the employee’s qualifications, the scope of their work, comparable pay at similar companies, and the ratio of salary to shareholder distributions. Compensation reclassified as a disguised dividend loses its deduction and gets taxed twice, once at the corporate level and again to the shareholder. Related-party pricing draws the same attention: when commonly controlled businesses transact with each other, the IRS requires arm’s-length terms matching what unrelated parties would agree to in the same circumstances. Shifting profits through inflated or deflated intercompany pricing invites the IRS to reallocate the income at fair market value.20eCFR. 26 CFR 1.482-1 – Allocation of Income and Deductions Among Taxpayers
One boundary for the largest filers: the Corporate Alternative Minimum Tax imposes a 15% floor on adjusted financial statement income for companies averaging more than $1 billion in annual book income over three years.21Internal Revenue Service. Corporate Alternative Minimum Tax For those companies, standard deductions can’t push tax liability below the CAMT minimum, so the strategies above have a hard limit.