Your Mid-Year Tax Review Checklist for Business Owners

Business owners! The year is flying by, and before you know it, tax season will be knocking at your door again. While it might feel early, right now is the perfect time for a mid-year tax review. Think of it as a check-up for your business’s financial health. With potential changes looming in the tax landscape, especially those related to the TCJA (Tax Cuts and Jobs Act) set to expire at the end of 2025, a proactive mid-year tax review is more important than ever. It can help ensure your return is filed accurately and you’re on track to maximize your refund or minimize your tax liability.

Let’s dive into five key areas every business owner should consider during their mid-year tax review in 2025:

1. Check Your Estimated Taxes and Income Projections

As a business owner, you’re likely responsible for paying estimated taxes throughout the year. These payments are based on your projected business income and tax deductions. A  mid-year tax review is crucial for comparing your business performance against those initial projections.

Has your income been higher or lower than expected? Have your expenses changed significantly? If your income is higher, you may need to increase your remaining estimated tax payments to avoid potential penalties for underpayment. Conversely, if income is lower, you can reduce them. Generally, estimated tax must be paid in equal installments quarterly. For calendar-year taxpayers, the due dates are typically April 15, June 15, September 15, and January 15 of the following year. Making estimated tax payments based on annualized income might be suitable if your income isn’t received evenly throughout the year, like if you receive commissions or bonuses late in the year.

Don’t forget about other taxes you might owe, like self-employment taxes (SECA tax). Half of your self-employment Social Security and Medicare contributions can be tax-deductible. Also, individuals with income above certain thresholds are subject to a 3.8% net investment income tax (NIIT) on things like interest, dividends, capital gains, and passive activity income. Be sure to consider the tax on your net investment income from business when making estimated tax payments. Taking a careful look now allows you to adjust your payments and avoid a tax-time surprise (and potentially, penalties!).

2. Assess Your Qualified Business Income (QBI) Deduction

The QBI tax deduction, a hallmark provision of the TCJA, allows eligible individuals, estates, and trusts to tax deduct up to 20% of their qualified business income. This can significantly reduce your overall business tax liability. However, this deduction is currently set to expire after 2025.

Understanding and maximizing this tax deduction in the current year is vital for business owners operating as sole proprietors, partners in partnerships, or shareholders of S corporations, especially before its potential sunset. A  mid-year tax review provides an opportunity to ensure your business activities qualify and properly track qualified items of income, gain, deduction, and loss.

Complex rules apply, including limitations based on taxable income, whether your business is a specified service trade or business (SSTB), and rules around the W-2 wages paid and the unadjusted basis immediately after acquisition (UBIA) of qualified business property. Aggregation rules may allow combining certain trades or businesses to meet these thresholds. Since the deduction reduces taxable income but doesn’t affect limitations based on adjusted gross income (AGI), and is available whether you itemize or not, reviewing your eligibility and the calculations involved mid-year can help you strategize to maximize it before it potentially goes away. If the QBI deduction sunsets without replacement, your taxable income could increase.

3. Evaluate Capital Expenditure Plans and Depreciation Strategies

Is your business planning any significant purchases of equipment or other property? A  mid-year tax review is the perfect time to look at your capital expenditure plans. Purchasing property for use in your trade or business entitles you to depreciation deductions over several years. By analyzing these benefits, you might find it advantageous to make a planned acquisition in one year rather than another.

Businesses can benefit from bonus depreciation, which allows for accelerated deductions on qualified property. However, bonus depreciation is phasing out. Reviewing your plans now lets you understand how current depreciation rules, including bonus depreciation rates available through 2026, can impact your tax liability. Different types of property have different recovery periods and depreciation methods. Special limits apply to property used for both business and personal purposes, like automobiles. Final tangible property regulations also help determine whether costs are currently deductible as repairs or capitalizable improvements.

To maximize the benefits of bonus depreciation before it potentially reverts to 0% in 2027 without new legislation,  business owners may consider accelerating their capital expenditures and placing assets in service before the end of 2026. Discussing these plans during your mid-year tax review ensures you take advantage of available tax deductions and comply with complex tangible property cost rules.

4. Examine Business Expense Tracking and Substantiation

Accurate record-keeping is fundamental to claiming business expense deductions. A  mid-year tax review offers a chance to check if your tracking methods are effective and if you’re capturing all eligible expenses. While you must prove all deductions, certain expenses, such as travel, meals, and entertainment, require more stringent substantiation. You need to document the amount, date, place, business purpose, business benefit, and business relationship for these expenditures.

For automobiles used for business, you can tax deduct actual business expenses or use a standard mileage rate. Keeping a daily log of business mileage and expenses is highly recommended, as the IRS views written records more favorably. Deductions for business meals are generally limited to 50%, although temporary exceptions were in place in prior years. Understanding these limits and properly documenting expenses is key.

If you use a portion of your home exclusively and regularly for business, you can tax deduct home office expenses if you are self-employed. This deduction was suspended for employees by the TCJA through 2025, but the rules for self-employed individuals did not change. Reviewing your records mid-year allows you to identify any gaps in documentation and implement better tracking practices for the rest of the year, ensuring you can substantiate your deductions and minimize your taxable income.

5. Consider Retirement Plan Contributions and Structure

Retirement planning is a essenatial consideration of your overall financial strategy, and for business owners, it ties directly into tax planning. A  mid-year tax review is an excellent time to look at your retirement savings goals and evaluate your business’s ability to make contributions to qualified retirement plans.

Qualified retirement plans for self-employed individuals are available. Contributions to these retirement plans can often be tax deductible, reducing your taxable income. Different plan types offer various benefits and contribution limits. Reviewing your mid-year cash flow and income projections allows you to determine if you can make additional contributions or need to adjust your current plan.

Considering your retirement plan structure and contributions during your mid-year tax review can offer significant tax advantages and help you build wealth for the future. Working closely with a dedicated PriorTax tax professional can help you navigate the complex tax rules governing distributions and ensure your plan aligns with your financial goals.

Other Considerations

Beyond these five key areas, a mid-year tax review for business owners can also include looking at your business entity structure. While the initial choice (sole proprietorship, partnership, C corp, S corp) is significant, considering whether a change might be beneficial, especially in light of sunsetting tax provisions and the potentially different tax rates for C corporations versus pass-through entities, could be part of a comprehensive review. For example, if the QBI deduction expires and the individual tax rates increase, C corporations’ lower corporate tax rate might become more attractive for some businesses.

Understanding the excess business loss limitation, which applies to noncorporate taxpayers and limits the deductibility of certain trade or business losses through 2028, is also important. Additionally, reviewing the payroll setup and potential tax advantages is worthwhile if you employ family members.

The Value of a Mid-Year Check-Up

A  mid-year tax review isn’t just about avoiding penalties; it’s about proactive planning to optimize your tax situation. With significant tax provisions potentially changing at the end of 2025, reviewing your business’s financials and tax position now is more critical than ever. It gives you time to make necessary adjustments, implement strategies to maximize tax deductions and tax credits, and prepare for potential shifts in the tax code.

While online tools and calculators can be helpful, the complexities of the U.S. tax code, especially for businesses, often require professional expertise. Consulting with a dedicated PriorTax Tax Professional can provide insights tailored to your specific business situation and ensure you are well-prepared for the remainder of the current year and future tax years.

This entry was posted on Thursday, May 22nd, 2025 at 8:00 am and is filed under Tax Deductions and Credits, Tax for Business, Tax Tips and Tricks. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.