By Daniel Sabet · CFO & Financial Advisor, GreenGrowth CPAs · Tax Strategy & Growth Planning · Los Angeles, CA | Updated September 2026 | Tax Advisory
This article continues our series on year-end tax planning and the incentives business owners can use before the calendar turns. As the financial year ends, businesses and individuals can reduce their tax liabilities by managing cash flow, chiefly through deferring income and accelerating expenses. Done well, that improves both the tax result and the financial position underneath it.
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Deferring income moves revenue recognition into the following tax year, while accelerating expenses pulls deductions into this one. Both rest on a single idea: a dollar of tax paid later costs less than a dollar paid now. However the strategy only works when next year’s rate looks equal to or lower than this year’s, so run a projection first. Cash-basis taxpayers have far more control than accrual-basis ones, and almost every move must be completed before December 31.
Understanding Cash Flow
To put things in perspective, cash flow refers to the movement of money into and out of your business or personal finances. Positive cash flow means income exceeds expenses, while negative cash flow means the opposite. Consequently cash flow management involves tax strategies aimed at optimising that balance, including deferring income and accelerating expenses.
Deferring Income: A Strategic Move
Firstly, one of the primary techniques for managing cash flow involves postponing income. Reducing this year’s income may place you in a lower bracket, and it defers the tax on that income until the following year.
Generally, several situations make deferral advantageous. If you expect to be in a lower bracket next year, perhaps through retirement, a career change or anticipated business difficulty, then postponing income makes sense. Yet the reverse is equally true. Where you expect a stronger year ahead, pulling income forward beats pushing it back, so the direction of your rate matters more than the deferral itself.
Run the projection before you move anything. Deferral is not automatically good. It is a bet that next year’s rate will be equal to or lower than this year’s, and a bet you can lose.
How to Postpone Income
There are numerous ways to defer income. Consider the following, although each depends on your accounting method.
Delay Collections
Firstly, if you are self-employed and on the cash method, you can postpone income by delaying collection. Sending invoices at the end of December, so payment arrives in January, is the common approach.
Defer Compensation and Year-End Bonuses
Meanwhile, for employees it may be possible to have an employer delay part of your pay until the following year. Similarly, a year-end bonus can be scheduled for early January. Any arrangement of this kind needs to respect the deferred compensation rules, so agree it in advance rather than after the amount is earned.
Hold Your Incentive Stock Options
Similarly, qualified incentive stock options defer income tax and capital gains tax while you hold the options or the resulting stock. Watch the alternative minimum tax consequences separately, since exercising can create an AMT item even without a sale.
Maximize Retirement Plan Contributions
Additionally, contributing the maximum allowable to certain retirement plans reduces adjusted gross income, provided all applicable requirements are met. Note that plan deadlines differ. A new 401(k) generally has to exist before the year ends, while a SEP-IRA can be established and funded as late as the extended filing deadline.
Use Like-Kind Exchanges
Alternatively, a section 1031 exchange defers gain when you swap real property held for business or investment use for other like-kind real property. Importantly, it no longer covers equipment or vehicles. The Tax Cuts and Jobs Act narrowed section 1031 to real property only. Strict identification and closing deadlines apply, so involve a qualified intermediary before the sale rather than after.
Ask for Installment Payments on Sales
Finally, when selling property, receiving payment in installments across several years rather than all at once defers recognition of part of the capital gain. Meanwhile depreciation recapture is generally taxed in the year of sale regardless, so model the first-year liability before agreeing terms.
💬 The Conversation Worth Having
Deferral has a hard limit, and it is not a technical one. The IRS applies constructive receipt, meaning that once income is available to you without substantial restriction, you owe tax on it whether or not you have banked the cheque. So delaying an invoice you have not yet issued is planning. Holding a cheque in a drawer until January, or backdating one you already sent, is not. The distinction sounds obvious in the abstract and gets blurry in December, which is exactly when it matters.
Not sure whether deferral helps or hurts your position this year? The projection answers it in an afternoon.
Accelerating Deductions: The Other Side of the Coin
Conversely, accelerating deductions means claiming expenses earlier. Essentially the aim is to incur deductible costs in the current tax year rather than the following one.
Bunching Deductions
This technique adjusts the timing of expenses so they run high in one year, when you itemise, and low in the next, when you take the standard deduction. Charitable giving is the usual candidate. It became more attractive recently, since a floor of 0.5% of adjusted gross income now applies to itemised charitable deductions. Since that floor applies annually, giving two years of donations in one year clears it once instead of twice.
Prepaying Expenses
Paying ahead for costs you expect to incur in the 12 months after payment can reduce the current year’s taxable income. Insurance, rent, subscriptions and professional fees are common examples.
The 12-Month Rule and Other Tests
However prepaid expenses are only deductible where certain conditions are met. For cash basis taxpayers, the 12-month rule permits deducting a prepaid expense in the current year. The benefit must not extend beyond 12 months from the prepayment date, or beyond the end of the following taxable year.
Accrual basis taxpayers face more demanding rules, involving the all events test and the economic performance test. Together these require that the obligation to pay is fixed, the amount is determinable, and the prepaid services or property are actually provided.
Place Assets in Service, Do Not Merely Order Them
Notably, bonus depreciation is now permanently 100% following the One Big Beautiful Bill Act, which removes the pressure to buy ahead of a phase-out. However the date test remains. An asset must be ready for its intended use before December 31, so a December order frequently produces a January deduction. Section 179 sits alongside it and, unlike bonus depreciation, is limited to taxable income. The IRS covers the mechanics in Publication 946 and the Form 4562 instructions.
One Deferral That Ends This December
Meanwhile, anyone who rolled a capital gain into a Qualified Opportunity Fund before 2027 reaches the end of that deferral on December 31, 2026. No extension mechanism exists, and filing later does not move the date.
Specifically, you include the lesser of the original deferred gain or the investment’s fair market value less basis, so a fund that declined produces a smaller number. Claiming that lower figure needs a defensible valuation, obtained before year end rather than during filing season. Meanwhile the ten-year appreciation exclusion survives entirely. So selling in December to fund a December tax bill usually forfeits the larger benefit.
Opportunities for Tax Savings
In practice these strategies can be particularly advantageous for businesses. Where prepaid expenses were not accelerated previously, an opportunity may exist this year. Adopting the approach in a business’s first year can produce substantial savings.
However, if prepaid expenses were capitalised in the past, a method of accounting has already been established. Changing it requires filing Form 3115 with the IRS rather than simply treating the expense differently on the next return.
Consulting a Tax Professional
While these strategies can produce meaningful savings, none should be implemented without professional input. A proforma draft of next year’s return shows how each action affects your liability. That is the only reliable way to know whether deferral helps or hurts.
Conclusion
In short, managing cash flow is a genuine tool for reducing tax. By deferring income and accelerating expenses deliberately, businesses and individuals improve their position while lowering what they owe. Yet the nuances decide the outcome, so understand them before acting.
At GreenGrowth CPAs we believe in equipping clients to make informed decisions. If you have questions about year-end planning, our team is glad to help.
Year-End Income Deferral: Common Questions
The questions below are the ones business owners actually search before year end.
Deferring income to next year
How do you defer income to next year?+
You delay the moment you recognize revenue, not the work itself. Cash-basis businesses hold invoices until early January, push year-end billing into the next cycle, and ask customers to pay in the new year. Accrual-basis businesses have less room, because the right to payment drives recognition rather than the deposit date.
What is the best way to defer taxable income?+
That depends on which direction your tax rate is heading. Deferral only helps when next year’s rate looks equal to or lower than this year’s. If you expect a stronger year ahead, or Congress raises rates, pulling income forward beats pushing it back. Run the projection before you move anything.
How do you defer income for tax purposes?+
Four levers do most of the work. Time your invoicing so December revenue lands in January. Delay asset sales that trigger a gain. Structure bonuses and commissions to pay in the new year. Use installment sale treatment when you sell property and collect over several years.
Which method of tax reporting provides more flexibility to time income and deductions?+
The cash method. Under cash accounting you recognize income when you receive it and deductions when you pay it, so the timing of a deposit changes the tax year. Accrual accounting ties both to when you earn or incur them, which removes most of that control.
What is the tax planning strategy that involves deferring or accelerating taxable income and deductions?+
Practitioners call it the timing strategy. It rests on one idea: a dollar of tax paid later costs less than a dollar paid now, because you keep the use of that money in between. Deferring income and accelerating deductions are the two halves of the same play.
Partnerships and pass-through entities
What tax strategies support income deferral for partners?+
Partners face a harder problem, because the partnership allocates income whether or not it distributes cash. Guaranteed payment timing, special allocations under the partnership agreement, and installment treatment on partnership asset sales all shift the year. State pass-through entity tax elections change the picture too, so model the partner-level result before you file.
Opportunity funds and the 2026 recognition date
What is the best way to defer taxes using a QOF?+
Reinvest an eligible capital gain into a Qualified Opportunity Fund within 180 days of realizing it. The rules split at the end of this year. Gains invested by December 31, 2026 follow the original regime and become taxable on that date. Anything invested after that date defers for five rolling years instead.
What are the best practices for deferring taxes using a QOF?+
Start with the recognition date, because December 31, 2026 catches every gain still deferred under the original rules. Build the cash to pay that bill. Harvest losses in the same year to offset it. Check your state, since several never conformed and may have taxed the gain already. The ten-year appreciation exclusion survives, so selling early forfeits the main benefit.
Limits, risks, and this year
How do you defer taxes safely?+
Keep the deferral inside the transaction. Delaying an invoice you have not yet issued is planning. Backdating one you already sent is fraud. The IRS applies constructive receipt: once income sits available to you without restriction, you owe tax on it whether or not you have banked it.
Can you still defer taxes in 2026?+
Yes, and the window closes with the calendar. Most timing moves must settle before December 31, which means invoicing decisions, bonus accruals, and asset sale dates need locking in during Q4. Waiting until you file removes every option, because the return only reports what already happened.
Timing decisions like these have to be made before December 31, not discovered in April. GreenGrowth CPAs runs year-end projections through our Tax Planning and Compliance service, and our outsourced CFO team keeps the invoicing, accrual, and cash-flow calendar aligned all year so the deferral is already in place when December arrives.
Note: This article is general information rather than tax advice. Thresholds, limits and rates are adjusted annually and state conformity varies. Confirm current figures with the IRS, your state revenue department, or your tax adviser before acting.
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