Tax Planning & Strategy
Tax preparation is backward-looking — you file based on what already happened. Tax planning is forward-looking — you take actions before year-end to reduce what you owe. The difference between clients who pay a lot in taxes and clients who pay what is legally required is usually not income level. It is whether they have a CPA who is looking ahead, not just filing.
Year-Round Tax Planning Process
Our planning process runs on a recurring calendar:
- January–March: Review prior year results, set goals, identify carryover items (NOLs, capital loss carryforwards, passive loss carryforwards)
- April–June: Q1 estimated payment calculation; review year-to-date income; assess retirement contribution opportunities
- July: Mid-year tax projection based on actual year-to-date results; identify if any adjustments are needed before Q3
- September–October: Q3 payment; assess whether to accelerate or defer income and expenses before December 31
- November: Year-end projection — formal written tax estimate so you know what you owe before the year closes
- December: Final actions — retirement contributions, equipment purchases, charitable giving, S-Corp salary true-up
Retirement Planning: The Most Reliable Tax Reducer
Pre-tax retirement contributions are dollar-for-dollar deductions from your taxable income. For a business owner in the 32% federal bracket plus 6.85% New York State bracket, a $1,000 contribution to a retirement plan saves approximately $389 in combined federal and state taxes — in addition to the investment growth.
The main retirement vehicles for self-employed and small business owners:
- SEP-IRA: Contribute up to 25% of net self-employment income, capped at the annual §415(c) limit. Contributions are made by the tax filing deadline (including extensions). Simple to set up; no annual reporting requirements.
- Solo 401(k): For self-employed individuals with no employees (other than a spouse). Allows both employee contributions (the annual elective-deferral limit under §402(g), with an additional catch-up once you turn 50) and employer contributions (25% of compensation), for a combined maximum of the annual §415(c) limit. Roth option available. Plan must be established by December 31 of the tax year.
- SIMPLE IRA: For businesses with up to 100 employees. Employee salary deferrals up to the annual SIMPLE limit, with a required employer match (either 3% of compensation or a 2% non-elective contribution).
- Defined Benefit Plan: Allows contributions significantly higher than defined contribution limits — potentially $100,000+ per year for high-income professionals. Requires actuarial certification and annual Form 5500 filing, but offers maximum deductions for business owners over age 50 with high and steady income.
Income Timing and Expense Acceleration
One of the most straightforward planning strategies is timing: deferring income to a lower-tax year and accelerating deductions into a higher-tax year. Cash-basis businesses (most small businesses) recognize income when received and expenses when paid — which means you have legitimate flexibility. Strategies include:
- Delaying December invoices until January if you expect lower income next year
- Prepaying January business expenses in December (rent, subscriptions, supplies) to accelerate the deduction
- Bunching charitable contributions into alternate years if your itemized deductions are near the standard deduction threshold
- Harvesting capital losses before year-end to offset capital gains (tax-loss harvesting)
- Recognizing income in years where you have offsetting deductions or losses
Section 179 and Bonus Depreciation
Section 179 allows businesses to deduct the full cost of qualifying equipment and software in the year of purchase rather than depreciating it over several years. The limit was raised to $2,500,000 by Public Law 119-21 in July 2025 and is indexed annually from there, with the phase-out beginning at $4,000,000 of purchases. Bonus depreciation under IRC §168(k) allows an additional first-year deduction for qualifying property. Public Law 119-21 (July 2025) repealed the phase-down schedule enacted under the Tax Cuts and Jobs Act and removed the placed-in-service deadline. The allowance is now 100% of adjusted basis for qualifying property acquired after January 19, 2025, with no scheduled expiry. A taxpayer may instead elect a reduced allowance for the first taxable year ending after January 19, 2025 under §168(k)(10). For a profitable business that needs equipment, buying before December 31 versus January 1 of the following year can shift a significant deduction forward by a full year.
Entity Restructuring
The entity you operate under has a larger tax impact than almost any other planning variable. We evaluate entity structure at least annually for clients whose income or business structure has changed significantly. Common restructuring scenarios: sole proprietor electing S-Corp status to reduce self-employment tax; S-Corp converting to C-Corp to access the 21% rate and retain earnings for growth; partnership reorganizing to incorporate a management company for operational reasons; single-member LLC bringing in a business partner, triggering the need for a formal partnership agreement and Form 1065.
State Tax Optimization
New York State has one of the highest income tax rates in the country — 10.9% at the top bracket — plus New York City's personal income tax (up to 3.876%) for NYC residents. The combined NYC rate exceeds 14% when federal is added. Planning strategies specific to New York: the Pass-Through Entity Tax (PTET) election allows partnerships and S-Corps to pay state tax at the entity level, generating a federal deduction that partially circumvents the $10,000 SALT cap. We evaluate the PTET election for every pass-through entity client annually.
Frequently Asked Questions
When should I start tax planning?
The best time to start is January — or any time of year except after December 31. Most tax-saving strategies require action before year-end: making retirement contributions, timing a major equipment purchase, shifting income between years, or adjusting your S-Corp salary. Once the calendar year closes, your options collapse to a handful of moves (like IRA and SEP-IRA contributions before the April 15 filing deadline). We offer mid-year planning reviews in July and a formal year-end projection in November for all clients who want proactive planning — not just compliance.
What is the QBI deduction and do I qualify?
The Qualified Business Income (QBI) deduction under §199A allows eligible self-employed individuals and pass-through business owners (sole props, partnerships, S-Corps) to deduct up to 20% of qualified business income from their taxable income. Public Law 119-21 (July 2025) removed the scheduled expiry after 2025, so the deduction continues under current law. The same act added a minimum deduction of $400 for taxpayers with at least $1,000 of active qualified business income. It does not apply to C-Corporations. High-income taxpayers in Specified Service Trades or Businesses (SSTBs) — which include law, accounting, consulting, and financial services — face phase-out limits. Above the annually indexed phase-out thresholds, SSTB owners cannot take the deduction. W-2 wage and capital limitations also apply above these thresholds.
Should I switch my LLC to S-Corp status?
An S-Corp election often makes sense when your net business profit consistently exceeds $60,000–$80,000 per year and you can justify paying yourself a reasonable salary of $50,000–$60,000. Here is the math: on $120,000 of net profit as a sole proprietor, you owe approximately $16,956 in self-employment tax. As an S-Corp with a $60,000 salary, you pay payroll taxes on $60,000 (approximately $9,180) and distributions on the remaining $60,000 are not subject to SE tax — saving roughly $7,700 annually. Against that, you add payroll processing costs and S-Corp return preparation fees (typically $1,500–$2,500 combined). Net savings of $5,000+ per year justifies the switch for many clients.
How do estimated quarterly payments work?
Self-employed individuals, business owners, and anyone with significant non-wage income must make quarterly estimated tax payments to avoid underpayment penalties. The payments cover federal income tax and self-employment tax (for sole proprietors and partners). Due dates: April 15, June 15, September 15, January 15. The IRS safe harbor: pay either 90% of the current year tax or 100% of last year's tax (110% if prior year AGI exceeded $150,000). We calculate your estimated payments each quarter based on year-to-date income and projected year-end income, so you are neither overpaying (loaning money to the IRS interest-free) nor underpaying (triggering penalties).