Founders can save five figures with four mid-year tax moves

Most founders treat tax planning as a winter sport — but the moves that actually lower your bill must be made while the year is still open.

Founders who defer tax planning to December forfeit five-figure savings, since salary levels, entity structure and retirement contributions must be locked in before Dec. 31 to count for the current tax year. Mid-year is when owners have the most control over their tax bill, according to tax planning guidance published by Entrepreneur.

"None of these are tricks," the guidance said. "They are decisions with deadlines, and most have to be made before Dec. 31 or they are gone for the year."

The salary lever matters most for S-corp shareholders. A higher salary enables larger retirement plan contributions and potentially a bigger qualified business income deduction, but every dollar added also triggers Social Security and Medicare taxes. Getting the balance wrong can swing the tax bill by five figures or more, the guidance said. Finding the balance between payroll tax on one side and retirement and QBI on the other is a subjective call, not a formula.

For founders clearing more than $150,000 in profit, a Solo 401(k) typically fits better than a SEP IRA, allowing larger contributions and a Roth component. A SEP is simpler but almost always pre-tax, which can block a backdoor Roth later. Two things can flip the answer: running an S-corp often means maxing the Solo 401(k) requires a bigger salary that eats into tax savings, and hiring a full-time non-spouse employee makes the Solo 401(k) unavailable entirely.

Entity Structure Sets the Table

Your entity determines which taxes you owe, which retirement accounts you can open and which deductions you can claim. A C-corp locks you out of the QBI deduction but opens other doors, such as Qualified Small Business Stock, which can shield millions in gain at sale. The most common sign that you have outgrown your entity is feeling like you're overpaying — when taxes stop being a line item and start being a genuine strain on cash flow.

Tie the review to change, not the calendar. If revenue and profit have not moved, there is usually no trigger to revisit. The two things worth watching are a real jump in profitability and the law itself. Washington tends to reshuffle tax rules every four to eight years, and the last reshuffle was a major one. Switching structures is possible but rarely cheap or simple, so running scenarios with a tax advisor before making a decision is essential.

The QBI and Augusta Rule Gap

On QBI, any S-corp or partnership owner who isn't incorporating it into planning is probably leaving money on the table. Take a physician with a private practice plus a side business that throws off extra cash. Whether those belong under one entity or two changes eligibility, because the practice is a specified service business and the side business may not be. From there, it comes back to the salary number: optimizing for the largest deduction while weighing the cost.

The Augusta Rule lets owners rent their home to their business for up to 14 days a year, tax-free. It only works if there is a legitimate business use, like an owner who hosts real company events at home, and it lives or dies on documentation and a defensible fair market rate. If you cannot support the number, do not bother.

In high-tax states like California, S-corp and partnership owners can elect entity-level state tax to sidestep the federal SALT cap, which still bites high earners even after the recent bump. This election can be particularly valuable for owners in states with high personal income tax rates.

The reason to act now is simple: you have enough of the year behind you to see where you are landing, and enough ahead of you to act on it. Run the four moves with your advisor this summer. The cash you free up has to go somewhere. Tax rules and limits change frequently, so verify current figures against the latest IRS guidance before acting.

This article is for informational reference only and does not constitute professional advice.