Prepay next year’s expenses before December 31
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A business that reports on a cash basis can usually deduct certain expenses in the year it pays them, even if part of what it's paying for falls next year. Paying January's rent, a year of insurance, or annual software subscriptions in December can move those deductions into this year.
The limit is the 12-month rule: the benefit can't last more than 12 months or run past the end of next year.
How it works
A cash-basis business can usually deduct expenses paid in December for services that run up to 12 months ahead, such as rent, insurance or subscriptions, as long as the benefit doesn’t run past the end of next year.
What makes it hold up
- The invoice and what period it covers
- Payment made by December 31
- That the business reports on a cash basis
Risks
Low within the 12-month rule. It shifts the deduction a year earlier rather than adding one, so next year’s deduction is smaller. Gift cards and deposits don’t count.
Questions to ask your CPA
- Which of our bills can we prepay?
- Is this year’s rate higher than next year’s, so moving the deduction pays?
Common questions
What can I prepay?
Rent, insurance, subscriptions, service contracts and similar costs, as long as the benefit ends within 12 months and before the end of next year.
Does this create a new deduction?
No. It moves a deduction from next year into this one, so next year's deduction is smaller by the same amount. It pays off when this year's tax rate is higher, or when you want the deduction now.
What doesn't count?
Deposits, gift cards and anything that buys a benefit lasting longer than 12 months.
Does my business qualify?
The business has to use the cash method of accounting. Most small businesses do, but check with your CPA.
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Education, not advice. Tax law changes and every situation is different, so confirm the details with your CPA or tax advisor before acting. This page was last checked against tax law as of October 2026, including the 2025 tax law, in October 2026.