Tax planning means making decisions before the year ends, while they can still change the result, rather than reporting them after. For most Denver small businesses, the biggest levers are the choice of entity and owner salary, the timing of equipment purchases and income, retirement contributions, and Colorado's elective entity-level tax for partnerships and S corporations.
Taxes are one of the largest costs most small businesses carry, and one of the few that planning can change. The difference between planning and preparation is timing. Preparation reports what already happened. Planning happens while you can still decide what happens. This guide walks through the moves that matter most for Denver owners in 2026.
What is the difference between tax planning and tax preparation?
Preparation is the return: a careful, accurate record of last year. Planning is a set of decisions made during the year about salary, purchases, entity structure, retirement contributions and timing. Almost every meaningful tax saving comes from the second, because by the time a return is being prepared, December 31 has passed and most choices are locked in.
How do quarterly estimated taxes work?
If you own a pass-through business, no one withholds tax from your profit, so you pay it in four installments. The IRS estimated tax rules generally require payments if you expect to owe $1,000 or more for the year. For 2026, the federal dates are April 15, June 15 and September 15, 2026, and January 15, 2027, per the 2026 Form 1040-ES. Colorado uses the same dates.
To avoid an underpayment penalty, pay the smaller of 90% of this year’s tax or 100% of last year’s, or 110% of last year’s if your adjusted gross income was over $150,000. Colorado’s test is gentler on the current-year side at 70%, according to its 2026 estimated tax form.
The practical framework: if your income is steady, pay based on last year and you are protected. If this year is much better than last, pay based on last year and set aside the difference, because you will owe it in April.
Should my business be an S corporation?
An S corporation election changes how owners pay employment tax. A sole proprietor or single-member LLC owner pays self-employment tax of 15.3% on net earnings, made up of 12.4% for Social Security and 2.9% for Medicare. For 2026, the Social Security portion applies up to $184,500 of combined wages and self-employment earnings, per IRS Publication 15.
An S corporation owner who works in the business takes a salary, and payroll taxes apply only to that salary. Remaining profit is distributed without employment tax. The catch is that the salary has to be reasonable. The IRS is clear on its S corporation compensation page that it can reclassify distributions as wages when the salary is too low for the work performed.
Here is an illustrative example. A Denver marketing consultant earns $150,000 of net profit. As a sole proprietor, her self-employment tax is roughly $21,000. As an S corporation paying herself a reasonable $90,000 salary, the combined employer and employee payroll tax on that salary is $13,770. The difference is about $7,400 a year. From that, subtract the real costs of the structure: payroll processing, a separate corporate return, Colorado unemployment insurance and FAMLI premiums. In her case the election clearly pays. At $60,000 of profit, it might not.
Which deductions matter most in 2026?
Colorado starts its income tax calculation from federal taxable income, so nearly every federal deduction also lowers your Colorado tax. These are the ones worth planning around.
Equipment and vehicles. For tax years beginning in 2026, IRS Publication 946 sets the Section 179 expensing limit at $2,560,000, reduced once qualifying purchases exceed $4,090,000. The same publication explains that 100% bonus depreciation was reinstated for qualified property acquired and placed in service after January 19, 2025. In practice, most small businesses can deduct the full cost of equipment placed in service by December 31. Writing off everything at once is not always best, though. If you expect to be in a higher bracket next year, spreading the deduction can be worth more.
Vehicle mileage. The business standard mileage rate was 72.5 cents a mile for January through June 2026 and 76 cents from July 1 onward. A dated log matters this year.
Home office. If part of your home is used regularly and exclusively for business, you can deduct it. The simplified method allows $5 a square foot for up to 300 square feet. The regular method uses actual costs and often produces more for larger spaces.
Retirement contributions. A solo 401(k) or other employer plan lets an owner defer up to $24,500 of salary for 2026, plus an $8,000 catch-up at 50 or older, or $11,250 between ages 60 and 63, according to the IRS 2026 retirement plan limits. Employer contributions come on top.
Meals. Business meals with clients are generally 50% deductible. Starting in 2026, most employers can no longer deduct meals provided to employees for the employer’s convenience, as the IRS explained in its overview of the 2025 business tax changes.
The qualified business income deduction. Owners of pass-through businesses may deduct up to 20% of qualified business income, subject to limits. The 2025 law made the deduction permanent. Colorado requires very high earners to add it back.
What does Colorado add to the picture?
The biggest Colorado-specific planning tool is the SALT Parity Act election. A partnership or S corporation can elect each year to pay Colorado income tax at the entity level, and the owners receive a credit for it. The federal cap on state and local tax deductions is $40,400 for 2026 and shrinks for incomes above $505,000, per the IRS correction to the 2026 Form 1040-ES. Owners who already hit that cap with property and income taxes are the ones most likely to benefit.
Denver businesses also carry local costs, like the Occupational Privilege Tax, that belong in any budget even though they are small.
What should I do before December 31, 2026?
Each of these needs to happen before year-end to count for 2026:
- Run a projection. Use actual results through September or October and a realistic estimate for the rest of the year.
- Set owner salary. S corporation owners should confirm their salary is reasonable and that payroll for the year reflects it.
- Time income and expenses. Cash-basis businesses can often defer billing or prepay certain expenses, if next year’s rate looks similar or lower.
- Place equipment in service. Buying is not enough. The asset has to be in use by December 31.
- Fund or open retirement plans. Setup and contribution deadlines differ by plan type, so confirm yours now rather than in March.
- Decide on Colorado’s entity-level election with your CPA, along with the estimated payments it requires.
- Write off what is truly lost. Bad debts and obsolete inventory belong on this year’s return if they are worthless now.
Planning as a habit, not an event
The owners who pay the least tax are rarely the ones with the cleverest strategies. They are the ones who look at their numbers three times a year: after filing to understand last year, in summer to adjust estimates, and in the fall to make year-end decisions. If you would like a partner for those conversations, our tax planning and preparation team works this way with Denver businesses, and our virtual CFO service adds monthly forecasting for companies that want more.
Common questions
When should a small business start year-end tax planning?
October or November is ideal. By then you have nine or ten months of real numbers, and there is still time to buy equipment, adjust payroll, fund retirement plans or make a Colorado entity-level tax election before December 31.
At what profit does an S corporation election make sense?
There is no single number. The savings come from paying self-employment tax only on a reasonable salary instead of on all profit, and they have to outweigh the added cost of payroll, a separate return and state unemployment and leave premiums. Many owners start running the comparison once profit consistently exceeds what a reasonable salary for their role would be.
How much equipment can I write off in 2026?
For tax years beginning in 2026, Section 179 allows up to $2,560,000 of qualifying purchases to be expensed, reduced once total purchases exceed $4,090,000. Qualifying property acquired and placed in service after January 19, 2025 is also eligible for 100% bonus depreciation.
Are business meals still deductible?
Meals with a clear business purpose, such as a meal with a client, are generally 50% deductible. Starting in 2026, most employers can no longer deduct meals they provide to employees for the employer's convenience, with narrow exceptions.
What is the 2026 business mileage rate?
The IRS rate was 72.5 cents a mile from January 1 through June 30, 2026, and 76 cents a mile from July 1 through December 31. Keep a dated log so each mile gets the right rate.