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Why Q4 Is the Most Important Time for Tax Planning
The September 15th and October 15th deadlines are behind us, but proactive tax planning season is just getting started.
At Reasonable Compensation Calculated (RCC), we remind business owners and accountants alike that this is the most critical time to evaluate your numbers, review your reasonable compensation, and take action to minimize next year’s tax bill.
Here’s how to make the most of the fourth quarter.
1. Get Your Books Up to Date
You can’t make informed financial decisions without accurate data.
If your bookkeeping is behind, it’s impossible to know what your business truly earned this year — and therefore impossible to calculate a reasonable salary, S corporation distributions, or anticipate your year-end tax position.
Now is the time to:
- Reconcile bank and credit card accounts.
- Ensure all business expenses are properly categorized.
- Verify that payroll, draws, and officer compensation are accurate.
Tip for S-Corp owners: Your books directly determine your reasonable compensation analysis — and that analysis impacts both your payroll taxes and audit risk. Make sure your data is current before year-end.
2. Use Q4 Strategically
The fourth quarter gives you one last opportunity to make changes that affect your 2025 taxes. Don’t wait until January to discover what you could have done differently.
Here’s where to start:
- Calculate your year-to-date net income and estimate your Federal and State tax liability.
- Revisit your officer compensation to ensure it remains reasonable based on your year-to-date profits and duties.
- Adjust payroll if necessary to bring your compensation into alignment before December 31st.
RCC Advantage: Our platform makes this process easy. Generate a data-driven, IRS-backed compensation report in minutes — helping you stay compliant and strategic before closing the books.
3. Implement Proven, IRS-Approved Strategies
If you haven’t done formal tax planning yet this year, there’s still time. Consider these proven strategies before December 31st:
- Maximize your retirement contributions. For 2025, you can contribute up to $23,500 to a 401(k) or up to $70,000 to a SEP IRA (subject to the 25% of compensation rule).
- Purchase qualified business equipment or technology and take advantage of Section 179 or bonus depreciation.
- Harvest capital losses to offset investment gains.
- Review your officer compensation level to balance payroll and distributions in the most tax-efficient way possible.
4. Avoid April Surprises
April 15th should confirm your strategy — not reveal your mistakes.
When you take time now to align your reasonable compensation, optimize deductions, and project your tax position, you’ll head into tax season with confidence instead of uncertainty.
Need help?
Our team offers a complimentary walkthrough of the RCC platform and demonstrates how accountants and S-Corp owners can use it to stay compliant and reduce payroll taxes.
