As a savvy business owner, you know that success isn't just about sales and services – it's also about smart financial management, especially when it comes to taxes. With half the year behind us, now is the perfect time to conduct a mid-year tax review. This proactive approach can help you identify opportunities, avoid surprises, and set yourself up for a smoother tax season when it arrives.
Here's a checklist to guide your mid-year tax review:
1. Revisit Your Estimated Tax Payments
If you're a sole proprietor, partner, or S-Corp shareholder, you likely make quarterly estimated tax payments. Have your income or expenses changed significantly since the beginning of the year?
- Action: Review your year-to-date income and expenses. Project your income for the remainder of the year. Adjust your estimated tax payments if needed to avoid underpayment penalties or overpaying.
- Key Dates (2025): The second quarter estimated tax payment for 2025 was due on June 16, 2025. The third quarter payment is due September 15, 2025, and the fourth quarter payment is due January 15, 2026.
2. Evaluate Business Expenses and Deductions
Are you maximizing all available deductions? Mid-year is an excellent time to categorize and organize your financial records.
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Action:
- Review Common Deductions: Look for equipment or technology purchases, home office expenses (if applicable), business travel, meals, entertainment (subject to limits), marketing and advertising costs, and employee salaries/benefits.
- Record Keeping: Ensure all receipts and documentation are organized. This will save you significant time and stress later.
- Accelerate Deductions: If your profit is higher than expected, consider making planned business purchases (e.g., equipment) before year-end to accelerate deductions.
- Section 179 and Bonus Depreciation: Explore if you can utilize Section 179 expensing or bonus depreciation for new asset purchases to deduct the cost upfront.
3. Consider Retirement Contributions
Investing in your future can also reduce your current taxable income.
- Action: If your business is profitable, explore tax-advantaged retirement plans for yourself and/or your employees, such as SEP IRAs, Solo 401(k)s, or SIMPLE IRAs. Maximize your contributions to lower your taxable income.
4. Run a Mid-Year Profit & Loss Statement
Your Profit & Loss (P&L) statement is a powerful tool for understanding your business's financial health.
- Action: Generate a mid-year P&L statement. Analyze your profitability, identify areas where you might be overspending, and spot trends. This insight can help you make informed decisions for the rest of the year and plan for any strategic investments.
5. Review Your Business Entity Structure
Is your current business structure still the most tax-efficient for your operations and goals?
- Action: For some businesses, especially if your net profit exceeds certain thresholds (e.g., $80,000 for S-Corps), electing a different structure could lead to significant tax savings by reducing self-employment taxes. This is a complex area, so consultation with a tax professional is highly recommended.
6. Explore Tax Credits
Don't overlook valuable tax credits that can directly reduce your tax liability dollar-for-dollar.
- Action: Research potential credits such as the Small Business Health Care Tax Credit, Work Opportunity Tax Credit, or Disabled Access Credit, among others. Confirm your eligibility and gather necessary documentation.
7. Schedule a Tax Strategy Session
You don't have to navigate the complexities of tax planning alone.
- Action: A mid-year check-in with your accountant or tax advisor is invaluable. They can help you optimize your tax strategy, address any changes in your business, and ensure you're on track to meet all upcoming deadlines and minimize your tax burden.
By taking these proactive steps now, you can gain peace of mind and ensure your business is in the best possible tax position as you head into the second half of the year. Don't wait until the last minute – your future self will thank you!
