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Key Takeaways
- Your tax bill isn’t decided in April. It’s decided by the structures, accounts, and elections you set up while the year is still open.
- Don’t treat taxes as a once-a-year chore. Treat them as an ongoing strategy, tune salary, estimates, and deductions during the year.
Most business owners think about their taxes when it is time to file. The problem is that by then, the year is already closed, the income has already been received as it was and most of the decisions that could have lowered the bill are behind you. Filing is just reporting a number that was set months earlier.
That is the part people miss. The moves that actually cut your tax bill are not things you do in April. They are things you do while the year is still in front of you, and nearly all of them have a deadline that falls before Dec. 31. Here is how I think about the year while there is still time left in 2026 to act on it.
First, the things that just need to exist
Some moves cost almost nothing today and are only there to keep your options open later. I would do these now and not think twice about it.
The first is to form an LLC and operate through it. The LLC is the most flexible entity type. On its own, it changes nothing about your taxes, but it can go anywhere from there: it can stay a disregarded entity, be taxed as a partnership or take an S-Corp or C-Corp election later.
All of those are fine, and which one is right depends on where the business goes. The part that trips people up is that neither election is its own separate entity. It is an election on a pre-existing business, and if that entity is not already in place, there is nothing to elect on. Every Q4, owners come to me having had a banner year through a sole proprietorship, and by then, the income has been received the wrong way for 11 of the 12 months.
That income cannot be reclassified after the fact. There is nothing to do but wait another year. The LLC can remain dormant; it is simple to maintain and usually costs almost nothing. When you realize you are having a strong year, the election can be made retroactively, but only if the entity was there to elect on.
The second is opening a solo 401(k), even if you put nothing into it. This one surprises people. As long as the account is open by year-end, you have bought yourself time to decide on contributions later. If it is not open, the employee contribution will be lost after Dec. 31. That is a five-figure deduction you miss out on, even if you have the cash to fund it. Opening the account costs you nothing. And do not default to a SEP-IRA without understanding what a solo 401(k) can do. The why is a topic for another article, but the short version is that the solo 401(k) usually wins.
The third is opening a donor-advised fund. If charity is part of your picture at all, a DAF lets you separate the deduction from the giving itself. You can contribute quickly at year-end, once you actually know what your income looks like, take the deduction in the year you need it, and then send the money to charities on your own schedule.
Without one, you are picking organizations and writing checks in the last week of December. With one, the timing is yours.
Then, the work that happens during the year
The next category is not a form you file; it is a strategy that only works if you do it while the year is still open.
Deductions and credits are a good example. Take your home. Do you take the home office deduction, or do you use the Augusta rule and rent your home to your business for meetings? These are different tools with different math, and the right answer depends on your entity, your income and how you actually use the space. If you wait until filing season, you take whatever the software gives you. If you work on it during the year, you actually get to choose.
Salary is another one, and it is where I see the most money left on the table. If you run an S-Corp, there is a difference between a reasonable salary and an optimal salary. Reasonable is the number you can support with a proper independent study, the number that holds up if anyone ever asks.
Optimal is the number you should actually pay yourself to get the best final tax result, once you account for the QBI deduction and your retirement contributions, both of which move with your wages. Those are rarely the same number. Most owners only ever hear about the first one, because getting to the second requires modeling during the year, while payroll can still be adjusted.
Decide how you are paying as you go
Your quarterly estimates are a strategy in their own right, and getting them wrong carries a real cost in interest and penalties. There are two basic approaches. Safe harbor means you pay based on last year’s tax, and you are protected from penalties, no matter what this year brings. That works well when income is climbing. Projection-based means you pay on what you actually expect to owe this year, which keeps cash in your hands when income is coming down. Both are good approaches. Which one fits depends on your personal situation, and what matters is having a clear strategy and understanding why you chose it, rather than paying whatever the voucher says.
And if you have made no estimates this year, do not wait for April. Penalties accrue quarter by quarter, so a catch-up payment now stops the meter earlier. This is one of the few places in tax where acting mid-year is simply better than acting at year-end.
Talk to a tax professional now, not in march
Here is the one nobody budgets time for. Bringing on a new tax firm takes time. They need to onboard you, understand the business, review prior returns and still have enough of the year left to actually execute on what they find. Come in March, and the best anyone can do is file a clean return for a year that is already closed. Come now, and there is still time to implement a system for your business. Do not rush money and tax decisions if you can avoid it. Giving yourself the time is one of the easiest ways to stay on top of them.
When you interview firms, ask whether they offer tax optimization and planning as an actual product, not just preparation. There are plenty of good preparers who will report exactly what happened. What you want is someone working with you to change what happens.
Ask how communication works, too. Do they rely on seasonal employees? How do they keep your context shared between the people inside the firm who touch your file? This matters for the strategy you build today, but it matters even more for all the adjustments to come. Your tax situation is ever-changing, and the context of past events is important. A firm that loses that context every season is starting over with you every year.
The way I put it with clients is that you have a lifetime tax bill, not just this year’s. It runs through your retirement assets, your estate and what you eventually pass on to your children, and over time, it can climb into the hundreds of thousands, maybe more. You don’t get to a number that size in April. You get to it by making decisions early, while there is still a year in front of you to act on them.
Key Takeaways
- Your tax bill isn’t decided in April. It’s decided by the structures, accounts, and elections you set up while the year is still open.
- Don’t treat taxes as a once-a-year chore. Treat them as an ongoing strategy, tune salary, estimates, and deductions during the year.
Most business owners think about their taxes when it is time to file. The problem is that by then, the year is already closed, the income has already been received as it was and most of the decisions that could have lowered the bill are behind you. Filing is just reporting a number that was set months earlier.
That is the part people miss. The moves that actually cut your tax bill are not things you do in April. They are things you do while the year is still in front of you, and nearly all of them have a deadline that falls before Dec. 31. Here is how I think about the year while there is still time left in 2026 to act on it.
First, the things that just need to exist
Some moves cost almost nothing today and are only there to keep your options open later. I would do these now and not think twice about it.
