December 31 Business Tax & Payroll Checklist

1. Before Your Final Calendar-Year Payroll

• ☐  Personal use of company vehicles (PUCC): gather mileage records and determine taxable personal use.
• ☐  S-Corporation shareholders owning more than 2%: total qualifying company-paid or reimbursed health insurance premiums and confirm correct Form W-2 reporting.
• ☐  Owner and officer wages and bonuses: evaluate reasonable compensation and process wage payments and withholding correctly (see section 2).
• ☐  Employee bonuses: determine amounts, payment dates, and whether unpaid amounts qualify for an accrual-basis deduction (see section 2).
• ☐  Group-term life insurance: calculate taxable coverage and consider special rules for owners.
• ☐  Other taxable fringe benefits: identify taxable allowances, personal expenses, and noncash benefits.
• ☐  Retirement plan deferrals: confirm employee elections, payroll deductions, and contribution limits.
• ☐  Accountable plans: substantiate business reimbursements and resolve unsubstantiated advances.

Some noncash fringe benefits have special payroll timing rules. Coordinate with your payroll provider; not every adjustment must be made in the last regular paycheck.

2. Bonuses, Related Parties, and Shareholder Loans

Owner and Officer Compensation

Working S-Corporation shareholders should receive reasonable compensation for services. Bonus payments treated as wages require proper payroll reporting and withholding. Not sure your wages are reasonable? Email Daniel and we’ll help make sure your compensation is in compliance.

Employee Bonuses

For an accrual-method business, a bonus may qualify for a deduction in the year earned even when paid shortly afterward—often within 2½ months—if the liability is fixed by year-end and other tax requirements are met. An informal plan or bookkeeping entry by itself is not enough. Cash-method businesses generally deduct bonuses when paid.

Related-Party Payments

Review unpaid rent, interest, wages, management fees, and other amounts involving owners, family members, and related entities. Special rules can defer deductions for certain accrued related-party expenses until the recipient includes the income. These rules generally relate to the business’s fiscal tax year-end, not necessarily December 31.

Shareholder Loans and Advances

Reconcile amounts owed to or from shareholders. Review documentation, interest, repayment terms, and whether advances are properly treated as loans, distributions, or compensation. Review S-Corporation loan basis issues when relevant.

3. Independent Contractors and Form 1099

• ☐  Form 1099-NEC: identify contractors paid $2,000 or more in 2026 (up from the long-standing $600 threshold)—for music retailers, often lesson instructors, repair technicians, and other service providers.
• ☐  Form 1099-MISC: the threshold for rents, prizes, and other income is also $2,000 per payee for 2026. Some categories keep lower limits, such as $10 for royalties.
• ☐  Collect a Form W-9 from each contractor now, before January deadlines.
• ☐  Note which payments were made by card or payment app; these are generally reported by the payment processor on Form 1099-K, not by you.

4. Common Federal Deadlines After December 31

January 31 — Standard Date

• ☐  Furnish W-2s and file Forms W-2 with SSA; furnish and file Form 1099-NEC.
• ☐  Generally furnish Forms 1099-MISC to recipients; some exceptions apply.
• ☐  Generally file Q4 Form 941 and annual Form 940, when applicable; certain timely depositors may have extra filing time.

February 28 — Standard Date

• ☐  Generally file paper Forms 1099-MISC with IRS.

March 31 — Standard Date

• ☐  Generally file electronic Forms 1099-MISC with IRS.

Standard dates shift for weekends and legal holidays. Special deadlines, extensions, state reporting rules, and e-filing requirements may apply; confirm the applicable filing year.

Additional Resources

• IRS Publication 15-B — Fringe Benefits
• IRS S-Corporation Compensation and Medical Insurance
• IRS Information Return Reporting

Plan Ahead

Year-end payroll and tax planning is easier when issues are identified before deadlines. Contact MRAS if you need help evaluating your options.