Prepare now for your 2026 taxes with these strategies

Annual tax planning should be more than a wild scramble to meet basic tax deadlines.  A proactive tax strategy should include an action plan covering tax structure, deductions, compensation strategies, and making decisions that could materially affect tax liability for the whole year. Partnering thoughtful planning with business-tax attorney guidance can help maximize your bottom line.

Revisit and Optimize Entity Structure

Sole proprietors, LLCs, and C corporations should reevaluate their business structure. It might not be optimal. There is a March 15 deadline for a calendar-year C corporation to elect to become an S corporation and gain pass-through treatment. If this deadline is missed, the opportunity may be missed for the whole year.

An election to become an S corporation can have great tax benefits, but it is not for every business. The plus in making this election is flexibility in characterizing income taxed to the owner. While with a C corporation, your tax preparer may urge you “zero out profits” annually by bonuses, so that distributions are not double taxed if drawn as dividends, S corporations allow owners to set a reasonable salary. This may reduce the burden of self-employment tax, wherein the balance of the distributions will not be so taxed. It may also help proprietors, who want to also reduce their self-employment tax.

Let’s say a consultant is netting $180,000 as a sole proprietor; by law, they then must declare and pay self-employment tax on the entire $180,000 amount. By switching into an S corporation and setting a $100,000 “reasonable salary,” they could save roughly $8,000–$10,000 in self-employment taxes each year. In addition, they have a bit more time than the March 15 deadline to make this adjustment—it is due the 15th day of the third month from commencement for a newly formed corporation.

Optimize the Qualified Business Income (QBI) Deduction

If eligible, plan to take advantage of the Section 199A, QBI deduction. This deduction is available to qualifying proprietors and owners of pass-through entities (LLCs, S corporations, and partnerships). To qualify for the deduction, a business must have taxable income, adequate payroll (for entity businesses), and/or sufficient qualified business assets.

A commonly overlooked opportunity occurs when a business owner operates two related businesses but does not make an “aggregation election.” This election can allow both businesses to be treated as one for purposes of qualifying for a larger QBI deduction.

Moreover, these rules are particularly complex if you are in a “Specified Service Trade or Business” (SSTB), such as consulting or legal services, where the deduction phases out at higher incomes. Consulting with a business-tax attorney is strongly recommended to fully understand these complex rules.

Implement Accelerated Depreciation with Section 179

To maximize tax benefits, businesses needing to purchase equipment, vehicles, or technology must do so before year-end. Timing is of the essence, as 100% bonus depreciation is available under the 2025 One Big Beautiful Bill Act (OBBBA). However, to apply, the property must be purchased, delivered, and available for use before the close of the year.

Set Up High-Contribution Retirement Plans

Planning may include the use of retirement plans, and much more than just an IRA, which often doesn’t maximize tax savings. For maximum tax savings, a business-tax attorney may advise a Solo 401(k) or a Cash Balance Plan; both options allow significantly higher annual contributions (sometimes more than $100,000) that are tax-deductible, slashing taxable income today, while building tax-deferred wealth for tomorrow. Most plans must be established prior to year-end, and it is important to select the right plan for you.

Utilize an Accountable Plan for Expenses

Even if you gather some receipts, you must use an accountable plan. To do this right, one should start early. Without it, reimbursements could be treated as taxable income. An accountable plan keeps the deduction for the business and excludes the reimbursement from the employee’s income.

The three requirements of an accountable plan include:

1. Business Purpose: The expense must be for a legitimate business reason.
2. Proper Documentation: Receipts and other required records must be provided.
3. Return of Excess Funds: Any advance payments exceeding the documented expenses must be returned.

Hire Your Spouse or Children

Employing your spouse or children for legitimate work in your business can offer tax advantages when properly structured. Placing your spouse on payroll may increase future Social Security benefits, depending on compensation and work history. In addition, paying wages to your children allows you to shift income from your higher tax bracket to their lower one. Indeed, if your business operates as a sole proprietorship, wages paid to children younger than 18 are not subject to Social Security or Medicare taxes.

The business may deduct all of those wages as an ordinary and necessary expense, and the child can use the earned income to fund a Roth IRA.

Prepay Expenses and Defer Income

For cash-basis taxpayers, timing is everything. However, there are special rules governing how much you can “accelerate” expenses through prepayments (such as rent, insurance, and software subscriptions).

Effective tax filing is the product of planning. Each of the strategies above carries technical requirements, timing considerations, and compliance risks if implemented incorrectly. By planning early and working with a qualified business-tax attorney, business owners can adopt a proactive approach that aligns tax efficiency with long-term goals. The sooner planning begins, the more control and flexibility you retain.

Cameron L. Hess is a director in Fennemore’s Business & Finance department. A CPA-attorney, Cameron advises clients on tax and legal strategies for real estate and other business assets, including representation of closely held family businesses. Cameron focuses on integrated planning for families and their businesses, including acquisitions, sales, succession, and estate planning. He can be reached at chess@fennemorelaw.com.