Entrepreneurs face unique tax challenges from variable income and business structures, but proactive strategies slash liabilities legally while building wealth. Year-round planning around deductions, credits, and entity choices maximizes take-home pay, especially under 2026 rules like restored bonus depreciation and QBI tweaks.
Choose the Right Business Structure
Entity type dictates taxes—sole props report on Schedule C, hit by self-employment taxes (15.3%). S-Corps save via salary distributions avoiding payroll tax; $100,000 profit with $60,000 reasonable salary pays less than full SE tax.
LLCs flex: single-member defaults disregarded, multi elects S-Corp. C-Corps suit VC-funded scale but double-tax unless losses offset. Consult annually—$5,000 S-Corp setup saves $10,000+ yearly taxes long-term.
Maximize Retirement Contributions
SEP-IRAs allow 25% compensation up to $69,000 (2026 limit), deductible instantly. Solo 401(k)s hit $76,500 total ($23,000 employee + 25% employer), Roth options grow tax-free.
Cash-basis owners defer income via late-year contributions. Defined benefit plans supercharge high earners ($200,000+ limits). Automate max-outs—saves 37% bracket taxes while compounding.
Leverage QBI Deduction Fully
20% pass-through deduction phases at $197,300 single/$394,600 joint (2026 indexed). Service businesses (law, consulting) lose above thresholds; non-service keep full.
Bunch income/expenses to stay eligible: defer Q4 invoices, accelerate deductions. S-Corp salaries reduce QBI base but dodge SE tax—optimize split nets 10-15% savings.
Accelerate Deductions Strategically
Section 179 expensing up to $1.22M equipment; 100% bonus depreciation restored for 2026 buys. Purchase $50,000 machinery December—deduct full against income.
R&D credits refundable up to $500,000 startups; document software tweaks, prototypes. Home offices: $5/sq ft simplified up to 300 sq ft. Vehicle mileage 70¢/mile tracks deductions.
Timing: cash-basis push expenses to high-income years, defer revenue.
Optimize Payroll and Compensation
S-Corp owners pay “reasonable” salaries ($80,000 median for $200k revenue)—excess as distributions tax-free for payroll. Family hires (kids under 18) dodge FICA.
Health insurance premiums 100% deductible; HSA contributions $4,300 single/$8,550 family pre-tax. Defer bonuses to January if 2026 rates drop.
Harvest Tax Losses Annually
Offset gains dollar-for-dollar; carry forward excess. Sell underperformers December—$3,000 ordinary income offset yearly.
Wash-sale rule avoids stocks 30 days; crypto freer. Opportunity zones defer capital gains into qualified funds.
Claim All Eligible Credits
Work Opportunity Tax Credit $2,400-$9,600 new hires from targeted groups. Employer child care credit 25-50% costs up to $150,000.
EV credits $7,500 business vehicles; energy-efficient buildings 30% via 179D.
Bunch Deductions and Charitable Giving
Itemizing beats standard $15,000 single/$30,000 joint—bundle 2-3 years donations into one for AMT dodge.
Donor-advised funds contribute appreciated stock (avoid capital gains), deduct fair market. QCDs from IRAs for 70+.
Manage Estimated Taxes Wisely
Quarterly payments avoid underpayment penalties (110% prior year safe harbor). Overpay early, earn interest; software calculates precisely.
State nexus review: remote sales trigger multi-state filing—nexus trackers prevent surprises.
Year-End Must-Dos for 2026
Defer Q4 income via December 31 invoicing holds. Accelerate prepaids under 12-month rule. Review SALT cap ($10,000)—PTET elects in pass-throughs bypass.
Audit-proof records: QuickBooks categorizes, CPA quarterly reviews.
Advanced Plays for High Earners
Backdoor Roth: contribute non-deductible IRA, convert to Roth. Opportunity zone funds defer gains. Captive insurance for risk pooling.
Cost segregation accelerates real estate depreciation 30-40% day one.
Metrics to Track Tax Health
| Strategy | Potential Savings | Implementation |
|---|---|---|
| S-Corp Election | 10-15% payroll | Annual review |
| Max Retirement | 37% bracket x contrib | Automate |
| QBI Optimization | 20% income | Income timing |
| Section 179/Bonus | 100% equipment | Q4 purchases |
| R&D Credit | $250k refundable | Document now |
Tax planning compounds like investments—proactive cuts 20-30% bills yearly. Structure smart, deduct aggressively, time wisely. Engage CPAs quarterly; strategies evolve with OBBBA changes. Lower taxes fund growth—plan now, prosper always.
