Business Owners: Why August Is the Best Time for a Tax Planning Review
August is an effective point for a 2026 tax planning review because enough of the year has passed to reveal actual revenue, payroll, expenses, and owner compensation, while several months remain to make legitimate tax decisions. The review should start with year-to-date bookkeeping, update projected taxable income, check estimated tax payments, evaluate retirement contributions, and identify deductions or credits that require action before December 31.
Business tax planning experience consistently shows that the biggest problems arise when owners wait until tax-return preparation. August creates a practical middle ground: financial results are more reliable than early-year projections, but there is still time to change compensation, retirement contributions, equipment purchases, accounting treatment, and estimated payments when the facts support those decisions.
Why August Creates a Better Planning Window
By August, seasonal patterns and operating results are easier to identify. A business can compare actual performance against the prior year and determine whether taxable income is trending higher or lower.
The IRS also requires estimated-tax planning throughout the year. For many taxpayers, the general estimated-tax safe-harbor framework uses the smaller of 90% of current-year tax or 100% of the prior-year tax, subject to special rules.
August review area | What to examine | Why it matters before year end |
|---|---|---|
Revenue | Year-to-date sales and expected fourth-quarter activity | Improves the income projection |
Expenses | Recurring, unusual, and deferred expenses | Identifies missing or misclassified deductions |
Owner compensation | Salary, distributions, guaranteed payments, or draws | Helps evaluate tax treatment and cash planning |
Estimated taxes | Payments already made versus projected liability | Reduces the risk of an unexpected balance |
Retirement planning | Existing plan and contribution activity | Determines whether additional contributions may be available |
Fixed assets | Equipment, vehicles, technology, and improvements | Allows time to evaluate applicable depreciation rules |
Seven Tax Planning Moves to Review Now
1. Reforecast full year taxable income
Do not simply annualize the first seven months. Adjust the projection for seasonal revenue, planned hiring, inventory purchases, bonuses, major contracts, and known changes in business activity.
A useful projection separates book income from taxable income because accounting results and tax treatment can differ.
2. Recalculate estimated tax payments
Compare actual year-to-date payments with the latest projection. If income changed materially, update the calculation instead of relying on an estimate created months earlier.
The IRS specifically provides a 2026 projected-tax worksheet for taxpayers who need to update their expected liability during the year.
3. Review retirement contribution opportunities
August leaves time to determine whether an existing retirement plan still fits the business and whether contribution levels are on track.
For 2026, the IRS lists a $24,500 elective-deferral limit for most 401(k) and similar plans, while the overall defined-contribution annual-additions limit is $72,000, subject to applicable rules.
2026 retirement figure | Amount | Important qualification |
|---|---|---|
401(k) elective deferral | $24,500 | Subject to plan and eligibility rules |
401(k) catch-up age 50+ | $8,000 | Higher limit may apply at ages 60–63 |
Higher catch-up ages 60–63 | $11,250 | Applies under specified plan rules |
IRA contribution limit | $7,500 | Combined traditional and Roth IRA limit |
Defined-contribution annual additions | $72,000 | Subject to compensation and plan rules |
Bonus tip: Check retirement contributions against payroll records rather than relying on a personal estimate. Contribution errors become harder to correct when discovered after year end.
4. Examine major purchases before December
Avoid buying equipment solely because of a potential deduction. First determine whether the purchase serves an actual business need, whether it will be placed in service during 2026, and which depreciation rules apply.
Tax planning should follow the business decision rather than create a business decision.
5. Review owner compensation and business structure
Significant changes in profitability may justify reviewing how owners receive compensation and whether the current entity structure remains appropriate.
For pass-through businesses, also examine how business income interacts with the owner's individual return. The correct treatment depends on entity type, ownership, compensation, and applicable tax rules.
6. Clean up bookkeeping before projections become final
A tax projection is only as reliable as the underlying records. Reconcile bank and credit-card accounts, investigate uncategorized transactions, verify payroll entries, record missing liabilities, and separate personal activity from business activity.
Bonus tip: Run a general-ledger review specifically for unusual transactions. Large one-time entries often distort projections more than ordinary monthly activity.
7. Check new 2026 tax rules and thresholds
Tax planning should use the rules applicable to the actual tax year. The IRS issued 2026 inflation adjustments covering more than 60 tax provisions, including tax brackets and deductions.
2026 individual tax item | Single filer | Married filing jointly |
|---|---|---|
10% bracket ends at | $12,400 | $24,800 |
12% bracket ends at | $50,400 | $100,800 |
22% bracket ends at | $105,700 | $211,400 |
24% bracket ends at | $201,775 | $403,550 |
Standard deduction | $16,100 | $32,200 |
These figures help establish the planning framework, but an individual business owner's actual tax position depends on the complete return.
Decide What Requires Action First
Not every tax strategy deserves immediate implementation. Prioritize decisions based on documentation, business purpose, timing, and expected tax treatment.
Situation | First planning question | Appropriate next step |
|---|---|---|
Income is substantially above projection | Are estimated payments still adequate? | Update the tax projection |
Revenue is seasonal | Does the fourth quarter differ significantly? | Build a month-by-month forecast |
Large equipment purchase planned | Is the purchase operationally necessary? | Review tax treatment before purchasing |
Retirement contributions are behind | What plan limits and deadlines apply? | Review contribution capacity |
Books contain unreconciled accounts | Can taxable income be trusted? | Complete bookkeeping cleanup first |
Consider These Factors Before Making a Decision
Tax planning should account for cash flow, business purpose, documentation, ownership structure, filing status, and timing rather than focusing on deductions alone.
Regional factors can also affect planning. Businesses in areas exposed to severe weather, including parts of West Virginia and surrounding Appalachian regions, should maintain organized records for interruptions, damaged property, insurance proceeds, and disaster-related transactions. Keep supporting documentation even when a tax treatment will not be determined until later.
Services That Support Tax Planning
Business Tax Services — Supports business tax preparation and year-round tax planning decisions based on the business's financial position.
Controller & CFO Services — Provides financial reporting, forecasting, and analysis that can improve the quality of tax projections.
Bookkeeping Services — Keeps financial records current enough to support reliable tax planning.
IRS Audit & Tax Resolution — Addresses existing IRS issues that may affect broader tax planning decisions.
Common Questions Before the August Review
Should a tax projection use bookkeeping through July
Yes. July year-to-date records provide a stronger starting point, provided accounts have been reconciled and significant transactions have been recorded.
Should a business change its tax strategy just because income increased
Not automatically. First identify why income increased, whether the change is temporary or recurring, and which planning options actually apply.
Should equipment be purchased before year end for a deduction
Only when the purchase makes business sense. Tax treatment should be confirmed before the transaction because eligibility depends on the asset and how and when it is placed in service.
Keep the Plan Current Through December
How often should the projection be updated
Update it whenever revenue, owner compensation, major expenses, or business structure changes materially. A second review later in the year can catch changes that an August forecast cannot anticipate.
Can estimated payments be adjusted after an August review
Potentially. The appropriate payment depends on the taxpayer's projected liability and applicable safe-harbor rules. Recalculate rather than simply increasing or decreasing payments by guesswork.
What records should remain with the tax-planning file
Keep projections, reconciliations, payroll reports, retirement-plan records, asset documentation, estimated-tax confirmations, and supporting documents for significant transactions together.
Does tax planning only benefit profitable businesses
No. A business experiencing lower income may need planning just as much. Losses, reduced estimated payments, retirement decisions, and timing of expenses can all require attention.
When should the next review occur
Use the August review as a baseline, then revisit the projection before the final quarter closes. That creates time to correct bookkeeping issues and address decisions that cannot be made after December 31.
Make August Planning Deliberate
August is valuable because the 2026 financial picture is developed enough to analyze without being so late that every decision becomes reactive. Start with accurate books, build a realistic full-year projection, verify estimated taxes, review retirement opportunities, and evaluate major transactions based on business needs and tax rules.
For businesses seeking structured tax-planning support, We Do Taxes can be contacted at info@wedotaxes.co or (681) 331-8110 to discuss the records and planning questions relevant to the business.
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