A well-timed tax strategy during the first quarter of the year can significantly impact your year-end results. While it’s tempting to take a “wait and see” approach to tax planning, the first few months of the year are actually the ideal time to pause, reassess, and make intentional moves that can reduce your tax liability and strengthen your overall financial position.
Below, we’re breaking down what you should be focusing on now—not just what to do, but why it matters, and how it impacts your broader tax position.
1. Make Your Q1 Estimated Tax Payment (Due April 15)
If you’re self-employed, run an S-Corp, or earn non-W-2 income, you’re probably required to pay quarterly estimated taxes. But here’s where many people go wrong: they base estimates on old data or guesswork instead of using real-time income analysis.
Why it matters:
Underpaying results in penalties and interest that could have been avoided. Overpaying limits your cash flow for growth, investment, or debt reduction. In Q2, you now have a full quarter of data to calculate a more accurate projection—especially important if Q1 income was higher or lower than usual.
Pro tip:
If you’re operating an S-Corp, now is the time to evaluate whether your reasonable compensation is still appropriate based on how Q1 played out. A mid-year adjustment can prevent issues down the line and align better with your tax planning goals.
2. Review Q1 Financials with Strategic Intent
Yes, reconciling the books is important—but interpretation is everything. Q1 is when your financials can start revealing real trends:
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Is your revenue higher or lower than expected?
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Are expenses creeping up in specific categories?
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Are margins holding steady or shrinking?
Why it matters:
Reviewing financials in Q1 allows you to spot red flags early, optimize spending, and identify opportunities to accelerate or delay revenue/expenses for tax timing purposes.
What to do next:
After cleaning up your books, review your profit and loss, balance sheet, and cash flow statement side-by-side with your budget or expectations. We recommend using this check-in to set or revise goals for the next two quarters and identify where tax strategy could support those goals (i.e., deferring income, accelerating deductions, or timing major purchases).
3. Explore Strategic Investments (ex. Solar or Large Equipment)
If your business is showing healthy profit, now is a good time to consider strategic asset purchases that serve your operations and your tax position.
Why it matters:
Under current tax law, you may qualify for bonus depreciation (60% in 2025) or Section 179 expensing, which allows you to write off all or part of the asset’s cost in the year it’s placed into service.
Example:
Investing in a solar installation before bonus depreciation phases down can offer a stacked benefit:
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30% federal solar tax credit
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Bonus depreciation on the remaining basis
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Long-term utility savings
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State or local incentives
Other qualifying purchases might include machinery, work vehicles, or technology upgrades.
Caution:
To qualify, the asset must be purchased and placed into service (not just ordered) in the same tax year. So waiting until Q4 can backfire if delays happen.
4. Reassess Withholding and Compensation Strategy
If you or your spouse receive W-2 wages, or you’re paying yourself through an S-Corp, now is the time to reassess your withholding strategy.
Why it matters:
Incorrect withholding is a leading cause of surprises at tax time. Adjusting it early means fewer corrections later—and possibly smoother cash flow.
Advanced tip:
S-Corp owners should also evaluate whether current compensation and distribution ratios are still appropriate. For instance, if your draw is too high compared to wages, the IRS could reclassify it and trigger payroll tax liabilities.
What to do now:
Run a year-to-date projection based on current income and withholding, then adjust if needed using updated Form W-4s or payroll settings.
5. Schedule a Tax Planning Session
A tax planning session isn’t just about staying compliant—it’s about using your current data to drive strategy before the window of opportunity closes.
Why it matters:
By mid-year, you have real numbers to work with, but still time to implement meaningful adjustments. Waiting until Q4 can limit your options.
What we can help you with:
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Evaluating retirement plan contributions (and whether to set up a SEP, Solo 401(k), or defined benefit plan)
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Analyzing passive vs. active income scenarios
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Reviewing owner distributions vs. wages
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Timing capital gains/loss harvesting
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Making estimated payment adjustments
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Implementing energy-efficient upgrades or charitable giving strategies
If you’re expecting a larger-than-usual tax year—due to a spike in income, sale of a property or business, or portfolio growth—this is the perfect time to put a structured plan in place.
Q1 Is a Leverage Point—Use It
Most people think tax planning starts in November, but real tax savings happen in the spring and early summer. You’re far enough into the year to project where things are headed, but early enough to make significant and strategic tax moves.
If you’re ready to shift from reactive to proactive, now is the time to take action.
Let’s talk. We’re here to help you review your numbers, clarify your options, and build a smart strategy that supports both your tax position and your long-term goals.
