Mid-year is the most underused planning window in a business owner's calendar. By June, there is enough of the year on record to see where taxable income is trending, and enough time remaining to take meaningful action before December. The five conversations below are the ones that produce the most impact when they happen in June rather than in November.
Why Mid-Year Tax Planning Matters More Than Year-End
Year-end tax planning is largely reactive. By December, most of the year's income has already been earned and most of the year's expenses have already been incurred. The decisions available are narrower, the timeline is compressed, and the opportunities that required earlier action have passed. Mid-year planning changes that dynamic. With six months remaining, the range of available strategies is significantly wider, and the decisions made in June have time to compound before December 31.
The five areas below represent the most productive conversations to have with a CPA before summer ends.
Five Mid-Year Tax Conversations Worth Having
Is your business structure still serving you?
Business structures that made sense at lower income levels often become suboptimal as revenue grows. The most commonly missed opportunity involves the tax treatment of LLC income. An LLC is a legal structure, not a tax election. The owner of a single-member LLC can elect how that LLC is taxed, and each choice creates different planning possibilities.
A consultant earning $100,000 through a single-member LLC currently pays approximately $14,100 in self-employment tax on that income. The same LLC electing S corporation tax treatment would pay self-employment tax only on the owner's W-2 wages, not on distributions. If a reasonable salary of $50,000 is established and the remaining $50,000 is taken as a distribution, the self-employment tax drops to approximately $7,000, a savings of more than $7,000 annually. At higher income levels, the savings are proportionally larger. S corporation status adds administrative complexity, including payroll processing and a separate tax filing, and it only makes financial sense when the tax savings justify those costs. The question worth asking is whether the current structure still fits the current income level.
Are you optimizing for the QBI deduction while it lasts?
Owners of S corporations, LLCs, and partnerships may qualify to deduct up to 20% of qualified business income under current law. For a business generating $200,000 in qualified income, that deduction can reduce taxable income by $40,000. The deduction is subject to income thresholds and phase-outs for certain service businesses, and it is currently scheduled to expire after 2025. Planning proactively for the deduction while it is available, and understanding how compensation structure and retirement plan contributions affect eligibility, is worth a specific mid-year conversation with a CPA.
Are you using the right retirement plan for your current income level?
Retirement plan contributions reduce taxable income dollar for dollar while building personal wealth outside the business. The right plan depends on income level, whether the business has employees, and how aggressively the owner wants to maximize tax deferral.
For 2025, a Solo 401(k) allows combined employee and employer contributions up to $70,000, or $77,500 for owners 50 and older. A SEP-IRA allows employer-only contributions of up to 25% of compensation, with a maximum of $70,000, and is simpler to administer. A Safe Harbor 401(k) works well for businesses with employees where the owner wants to maximize their own contribution without complex compliance testing. For high-income owners who want to shelter $100,000 or more annually, a cash balance plan can accommodate contributions well above the defined contribution limits and deserves serious consideration in strong income years.
Mid-year is the right time to confirm the current plan is still optimal and to establish any new plans before year-end deadlines.
Should you shift income or expenses across the calendar?
The timing of when income is recognized and when expenses are incurred is often within the business owner's control, and the tax difference between timing choices can be meaningful. In a strong income year, deferring some revenue to January and accelerating deductible expenses into December reduces the current year's taxable income. In a lower-income year, the opposite approach: billing now and deferring larger expenses, maximizes the benefit of the higher future bracket.
Cash-basis businesses have the most flexibility here, since income is recognized when received and expenses are deducted when paid. Mid-year is the right moment to project where the year is heading and make deliberate decisions about timing rather than leaving them to default.
What deductions and credits are you missing?
Business owners frequently underutilize available deductions simply because documentation was not in place or the opportunity was not identified in time. Common deductions worth confirming include home office expenses calculated under the actual expense method, business vehicle expenses using actual costs, software subscriptions, business phone usage, and professional development directly related to the business.
Larger opportunities worth specific attention include the Research and Development tax credit, which applies more broadly than most owners realize and covers product development, software improvements, and process engineering, the Work Opportunity Tax Credit for qualifying new hires, and cost segregation studies for commercial real estate holdings, which can accelerate depreciation deductions meaningfully in the year of acquisition.
What Part 2 Covers
The second article in this series covers three additional strategies that can reshape the overall tax picture for business owners: Roth conversions, charitable giving strategies, and real estate-related tax planning. Together, the ten strategies across both articles represent the most complete mid-year tax review available to a business owner working proactively with a CPA.
Frequently Asked Questions
What is the best time of year for business owners to do tax planning?
Mid-year, specifically the period between May and August, is the most effective time for proactive tax planning. Enough of the year has passed to see where taxable income is trending, and enough time remains to implement strategies that require lead time, including entity structure changes, retirement plan establishment, income timing decisions, and documentation for deductions. Year-end planning is valuable but more limited in scope because many of the highest-impact decisions require earlier action.
How does S corporation election reduce self-employment taxes?
In an S corporation, only the owner's W-2 wages are subject to self-employment taxes, which include Social Security and Medicare taxes totaling 15.3% on the first $176,100 of income and 2.9% above that. Distributions taken above the reasonable salary are not subject to these taxes. For a business owner earning $150,000, the difference between sole proprietor taxation and S corporation treatment on the distribution portion can represent $10,000 or more in annual savings. The trade-off is additional administrative complexity and cost, which is why the election makes financial sense only above a certain income threshold, typically in the $50,000 to $80,000 net income range depending on state and local factors.
What is the Qualified Business Income deduction and how is it calculated?
The Qualified Business Income deduction allows eligible pass-through business owners to deduct up to 20% of qualified business income from their taxable income. The deduction is subject to W-2 wage limitations and income phase-outs for certain service businesses above threshold amounts. For 2025, the deduction phases out for specified service trades or businesses, including many professional service firms, above $197,300 for single filers and $394,600 for married filing jointly. Compensation structure, retirement plan contributions, and the timing of income all affect how much of the deduction is available, which is why mid-year review of these interactions is worth the time.
What retirement plans are available to business owners in 2025?
Business owners have access to several retirement plan structures with contribution limits significantly higher than those available to employees. A Solo 401(k) allows up to $70,000 in combined contributions for 2025, or $77,500 with catch-up contributions for those 50 and older. A SEP-IRA allows employer contributions of up to 25% of compensation with a $70,000 maximum. A Safe Harbor 401(k) works well for businesses with employees. A cash balance plan can support annual contributions of $100,000 to $300,000 or more for high-income owners, making it the most powerful tax deferral tool available for owners who have maximized other options.
What is a cost segregation study and when does it make sense?
A cost segregation study is an engineering analysis that identifies components of a commercial building that can be depreciated over shorter useful lives, typically 5, 7, or 15 years, rather than the standard 27.5 or 39 years for real property. By accelerating depreciation deductions into earlier years, a cost segregation study reduces taxable income in the year of acquisition and the years that follow. It is most beneficial for owners who have recently acquired or constructed commercial property and who have sufficient taxable income to benefit from the accelerated deductions. The cost of the study is typically justified for properties valued at $500,000 or more.
Related Reading
- Year-End Tax Considerations for Business Owners (2025)
- 5 Smart Year-End Tax Moves That Make a Difference (and 3 You Can Ignore)
- Business Owner, Meet CEO You: How to Align Personal and Business Finances at Tax Time
- Tax Season Meets 4.5% Yields: What High-Earning Families Should Know About Interest Income
- How to Build Wealth Alongside Your Business
Educational information only. Please consult a qualified CPA or tax professional for guidance specific to your situation.
