How to Avoid the $10,000 Year-End Tax Mistake?

Before I started working on receipt software, I was CFO at a mid-sized tech company. And I'll never forget the meeting I had with the tax accountant in January 2019.

We'd just closed the books on the previous year. Revenue was up, expenses were controlled, everything looked solid. I thought we'd nailed it.

Then the accountant dropped the bomb: "You know you could have saved about $10,000 if you'd made some of these purchases in December instead of January, right?"

I just stared at him. Ten thousand dollars. Not because we did anything illegal. Not because we missed some obscure tax loophole. But because we weren't paying attention to the calendar.

That was the moment I realized most companies—including the one I was running the finances for—completely misunderstand how year-end tax planning actually works.

What Actually Happened

Here's the situation: In early January, we'd placed several orders that we'd been planning for months:

$18,000 in new computer equipment for the team
$7,500 in software licenses for the year
$4,200 in office furniture
$12,000 prepayment on our annual insurance
$3,500 in professional development courses

Total: $45,200 in business expenses.

All legitimate. All necessary. All receipts properly filed. Nothing shady.

The problem? We bought them in January instead of December.

Why does that matter? Because in the US tax system, business expenses are generally deductible in the year you incur them. If we'd made those purchases by December 31st, we could have deducted them against our previous year's income.

Our effective tax rate was about 23% that year. So those $45,200 in deductions would have saved us roughly $10,400 in taxes.

Instead, we pushed those deductions into the next year—a year where our income was lower and we needed the deductions less.

The Real Kicker

Want to know the worst part? We had the cash. We knew we needed these items. We'd already gotten quotes and approvals.

We just... didn't think about it.

Nobody in the company was thinking strategically about the calendar. Our operations team was focused on operations. Our purchasing team was focused on getting good deals. And I, as CFO, was so buried in closing the quarter that I wasn't looking ahead at tax planning.

It's not like this was some complicated tax strategy that requires an army of accountants. This is basic stuff. If you need to spend the money anyway and you have the cash, buy it before December 31st. That's it.

But we didn't have a system. We didn't have a checklist. And it cost us $10,000.

Where Most Companies Go Wrong

After that meeting, I did some digging. Turns out we weren't alone. Most small to mid-sized companies make similar mistakes every year.

Here's what I learned:

Mistake #1: No December Review

Most companies don't sit down in early December and ask: "What expenses are we planning for Q1 that we could accelerate?"

We certainly didn't. We'd have our budget meetings and approve spending, but we didn't think about timing. A purchase in January felt the same as a purchase in December.

It's not the same. The tax treatment is completely different.

Mistake #2: Poor Receipt Tracking

Even when companies do make December purchases, they often don't have the receipts properly documented by year-end.

I've seen this happen: A company orders equipment on December 28th. It arrives January 3rd. The invoice is dated December, but nobody files the receipt until January. The accountant doesn't see it during year-end closing. The deduction gets missed.

The IRS doesn't care when the product arrives. They care when you incurred the expense and when you can prove it. For guidance on proper receipt organization, check out how to organize receipts for taxes.

Mistake #3: Confusion About What Counts

A lot of business owners think you can only deduct something in the year you receive it. That's not true for most business expenses.

Under the "cash method" of accounting (which most small businesses use), you can deduct an expense in the year you pay for it, even if you receive the benefit later.

For example:

Pay for an annual software subscription in December? Deductible in December.
Prepay rent for January-March? Deductible in December.
Buy equipment in December that arrives in January? Deductible in December.

There are exceptions (you can't prepay multiple years of expenses all at once), but generally, payment date = deduction date.

We didn't understand this clearly, and it cost us.

What We Changed

After that painful lesson, I built a system for that company. And honestly, it's a version of what I recommend to every business owner I talk to now.

The December 1st Meeting

First week of December, mandatory meeting with:

CFO (me)
Head of Operations
Department heads who control budgets

Agenda: One question: "What are we planning to buy in Q1 that we could buy this month?"

We'd go through every planned purchase and ask:

Do we have budget approval?
Do we have the cash?
Is the vendor ready to deliver?
Is there any reason to wait?

If the answers were yes, yes, yes, and no—we accelerated the purchase.

The Accelerated Purchase List

We'd create a simple spreadsheet:

Item	Amount	Vendor	Approved By	Ordered Date	Receipt Filed
MacBooks (5)	$12,500	Apple	Operations	Dec 15	✓
Software licenses	$7,500	Adobe	IT	Dec 18	✓

The key: we tracked not just whether we ordered it, but whether we had the receipt properly filed and ready for the accountant.

The December 27th Receipt Audit

This was non-negotiable. December 27th, every year, we'd do a receipt audit.

Someone (usually me or our bookkeeper) would go through every purchase from December 1st onward and verify:

We have the receipt or invoice
It's dated within the current year
It's properly categorized for tax purposes
It's entered into our accounting system
The payment has cleared (or is scheduled to clear by December 31st)

If something was missing, we had a few days to track it down. For more on what makes a proper business receipt, see business tax receipts.

The Prepayment Strategy

We also got strategic about prepayments. Every December, we'd look at:

Annual insurance premiums coming up in Q1
Software subscriptions renewing in Q1
Rent if we could prepay a few months
Professional services we knew we'd need

If we could prepay without cash flow problems, we did. The tax benefit was worth it.

But—and this is important—we only prepaid things we were definitely going to use. Never prepay speculatively just for a tax deduction. That's how you waste money.

The Tax Rules You Should Know

Let me break down the actual rules, because there's a lot of confusion about this:

Cash Method vs. Accrual Method

Most small businesses use cash method accounting. Under cash method:

Deduct expenses when you PAY them
Report income when you RECEIVE it

This is why December spending matters. Pay it in December = deduct in current year.

Larger businesses often use accrual method:

Deduct expenses when you INCUR them (even if not yet paid)
Report income when you EARN it (even if not yet received)

Under accrual, the timing matters less because you're tracking obligations, not cash movement.

Check with your accountant which method you're using. If you're not sure, you're probably using cash method.

The 12-Month Rule

You can prepay certain expenses and deduct them immediately, but generally only if the benefit doesn't extend more than 12 months beyond the end of the tax year.

For example:

December 2024: Pay for software license covering January 2025 - December 2025 = Usually deductible in 2024
December 2024: Pay for software license covering January 2025 - June 2026 = Might need to spread the deduction across both years

This gets complicated. Talk to your accountant.

What You Can't Do

Some things that DON'T work:

Writing yourself a check in December but not cashing it until January (IRS doesn't count this)
Paying with a credit card in December but not paying the card until January (actually, this DOES work—credit card date counts, not payment date)
Buying inventory you don't actually need just for the deduction (bad business decision)

Section 179 and Bonus Depreciation

If you're buying equipment or vehicles, there are special rules (Section 179 deduction and bonus depreciation) that let you deduct the full cost in the year of purchase, up to certain limits.

For 2024, you can deduct up to $1,220,000 in equipment purchases under Section 179 (assuming your total equipment purchases are under about $3 million).

This is huge for businesses buying vehicles, machinery, computers, furniture, etc. But you have to actually purchase and place the equipment in service by December 31st. For more on handling business receipts and documentation, check out how to make a receipt for small business.

The Real Numbers

After we implemented this system, here's what happened:

Year 1 (2019): We identified $67,000 in Q1 planned purchases that we could accelerate to December. At our 23% effective rate, that saved us about $15,400 in taxes.

Year 2 (2020): $82,000 in accelerated purchases. Tax savings: ~$18,900.

Year 3 (2021): $91,000 in accelerated purchases. Tax savings: ~$20,900.

Over three years, this one simple system saved the company over $55,000.

That's real money. Money we didn't have to pay in taxes because we were strategic about timing.

And it didn't require any sketchy tax avoidance schemes. Just basic planning and good receipt tracking.

What You Should Do This December

If you're reading this in late November or December, here's what to do right now:

This Week:

Pull your Q1 budget and spending plans
List everything you're planning to buy January-March
For each item, ask: "Could we buy this in December instead?"

By December 15th:

Get approval for accelerated purchases
Contact vendors and place orders
Make sure everything can be delivered or processed by December 31st
Confirm you have the cash flow to handle it

December 15th-27th:

Track receipts for everything purchased
Enter all transactions into your accounting system
File receipts properly (digital is fine, just make sure they're organized)
Confirm payment dates are in December

December 27th-31st:

Final receipt audit—verify you have documentation for everything
Send your accountant a summary of major December purchases
Double-check that any credit card payments scheduled for early January are for December charges

If you need help getting receipts organized, see our guide on which receipts to keep for taxes.

A Few Warnings

Before you go crazy buying stuff in December, a few important warnings:

Don't Make Bad Business Decisions for Tax Reasons

The tax deduction is worth (at most) about 20-37% of the purchase price, depending on your tax bracket.

If you spend $10,000 on something you don't actually need, you'll save maybe $2,500 in taxes. You're still out $7,500.

Only accelerate purchases you were definitely going to make anyway.

Don't Drain Your Cash

Yes, there's a tax benefit to December spending. But if it leaves you cash-strapped in January, it's not worth it.

Keep enough cash for Q1 operations. Tax savings don't help if you can't make payroll.

Don't Ignore Your Accountant

Everything I'm saying here is general guidance. Your specific situation might be different.

Before making major end-of-year purchases, talk to your accountant. They know your business and your tax situation. They might see opportunities (or problems) you don't.

Don't Forget Documentation

The IRS doesn't care that you bought something. They care that you can PROVE you bought something.

Keep those receipts. Date them. File them properly. If you get audited three years from now, you need to be able to find them.

The Bottom Line

That $10,000 mistake back in 2018 taught me something I carry with me: tax planning isn't something you do once a year when you file your taxes. It's something you should be thinking about all year, and especially in December.

I see so many businesses leave thousands of dollars on the table every year, not because they're missing complicated tax strategies, but because nobody's thinking about timing.

You're going to spend the money anyway. You might as well spend it in a way that minimizes your taxes.

Set up a December review system. Track your receipts properly. Talk to your accountant. And for the love of all that's holy, don't make the same mistake that company made.

Your January self will thank you.