Mid-Year Tax Planning for Small Business Owners: What to Review Now Before Year-End Pressure Hits

By July, you're past the halfway point of the calendar year. The tax return you just filed—or the extension you're working under—covers 2024. But the return you're building right now is 2025 (or 2026, depending on when you're reading this), and the decisions you make between now and December 31 will determine what that return looks like. Year-end tax planning is reactive. Mid-year planning is proactive—and it almost always produces better outcomes because you still have time to act on what you find.

Step 1: Review Your Estimated Tax Payments

If you are self-employed or your business passes income through to you, you may need to make quarterly estimated tax payments. Individuals, including sole proprietors, partners, and S-corp shareholders, generally make estimated payments when they expect to owe $1,000 or more with their return after withholding and credits.

For 2026, the federal estimated tax due dates are April 15, June 15, September 15, and January 15, 2027, unless a weekend, holiday, or IRS disaster relief changes the deadline.

If you have been underestimating or skipping payments, mid-year is the time to recalibrate. The underpayment penalty is generally calculated by payment period, so catching up later may not erase earlier shortfalls. But it can help prevent the problem from getting worse in later quarters.

Pull year-to-date income, estimate the second half of the year, and compare your projected tax to what you have already paid. If you are using a prior-year safe harbor, remember that it may help reduce or avoid penalties, but it can still leave you with a large balance due if this year’s income is much higher.

Step 2: Compare YTD to Last Year

Pull a year-to-date income statement for the business as of June 30 and compare it to the same period last year. Is revenue up? Is it down? Are expenses tracking higher or lower than expected? This comparison serves two purposes: it tells you whether your estimate for the full year is on track, and it surfaces any trend that might affect the tax picture—a major new client added mid-year, a loss of revenue, or a large unexpected expense. If this year is running significantly higher than last year, your estimated payments based on prior-year safe harbor may be inadequate.

Step 3: Accelerate or Defer Income and Expenses

If you expect to be in a higher tax bracket this year than next, consider deferring income where possible (delaying invoicing for late-year projects) and accelerating deductible expenses (purchasing needed supplies or equipment before year-end). If you expect to be in a lower bracket this year—perhaps because a major revenue source goes away, or you have larger-than-usual deductions—consider pulling income forward and deferring expenses. The goal is to shift taxable income into the year where it's taxed most favorably. Cash-method taxpayers have more flexibility to do this than accrual-method taxpayers.

Step 4: Revisit Retirement Contributions

Retirement contributions are one of the most useful mid-year planning tools for self-employed and small business owners.

If you do not already have a retirement plan, mid-year is a good time to explore the options before year-end pressure hits. A Solo 401(k), SEP-IRA, SIMPLE IRA, or other plan may be available depending on the business structure, employee situation, cash flow, and goals.

Plan timing matters. Some elections, employee deferrals, or plan setup steps may need to happen before year-end, while certain employer contributions may be due by the tax return deadline, including extensions. SEP-IRA contributions, for example, can generally be made by the due date of the return, including extensions.

The planning point is simple: do not wait until the return is being prepared to ask what you should have contributed. Model the number while there is still time to plan the cash flow.

Step 5: Check Entity Structure Alignment

Mid-year is a reasonable time to revisit whether your current entity structure is still the right fit. If your net income has grown substantially since you formed the entity, the economics of an S-Corp election may now favor conversion. If you've been operating as an S-Corp with a salary level that hasn't been revisited in years, check whether your reasonable compensation is still defensible given current income levels and role responsibilities. If you started a new business activity that could benefit from a different entity, the conversation about structuring should happen before year-end to give time for the election to take effect at the right time.

Step 6: Review Receivables and Inventory

For accrual-method businesses: review your accounts receivable aging. If you have receivables that are genuinely uncollectible, a bad debt deduction may be available in the year the debt becomes worthless. For inventory-based businesses: mid-year is a good time to identify slow-moving or obsolete inventory. Under the lower of cost or market method, you can write down inventory to its current market value if it's below cost, and that write-down is a deductible expense.

Step 7: Model the QBI Deduction

If you're eligible for the QBI deduction, the interaction with W-2 wages, the wage limitation, and the SSTB rules requires some forward-looking calculation. If your taxable income is approaching the threshold where the wage limitation kicks in—roughly $383,900 for MFJ in 2024—you need to know that now. Solutions to the wage limitation issue require action before year-end: increasing W-2 wages paid, making capital expenditures that increase the UBIA-based alternative, or reducing taxable income below the threshold through retirement contributions. None of these are December 31 decisions if you want them to work.

Step 8: Confirm Payroll Tax Deposits Are Current

If you have employees, confirm that payroll tax deposits and payroll filings are current.

Employment taxes are different from ordinary business bills. Amounts withheld from employee paychecks, including federal income tax, Social Security tax, and Medicare tax, are trust fund taxes. The employer is holding those amounts for the government.

If payroll deposits fall behind, the IRS can move quickly, and responsible persons may face Trust Fund Recovery Penalty exposure. That can create personal liability for certain unpaid trust fund taxes.

ZFB does not provide payroll services or employment tax filing services. If payroll deposits are behind, contact your payroll provider immediately and consider getting help from a professional experienced in employment tax collection before the issue escalates.

Mid-year planning does not require predicting the future perfectly. It requires using the information you already have to make better decisions before the year is over. Review estimated taxes, compare year-to-date performance, model retirement contributions, check entity alignment, and fix compliance issues while there is still time. The goal is not aggressive tax avoidance. The goal is a cleaner, more defensible tax picture before December 31.

This article is general federal tax education. Tax planning depends on business structure, accounting method, income level, payroll status, retirement plan rules, and state law. ZFB does not provide payroll services, employment tax filing services, or standalone state tax planning. Business owners should coordinate payroll, employment tax, and state-specific issues with the appropriate professionals.

Related service: Tax Advisory & Planning