Mid-Year Tax Planning Checklist for Small Business Owners 2026

1. Are You Current on Estimated Tax Payments?

The IRS divides the tax year into four payment periods with specific due dates. For 2026, the schedule is:

You must make estimated payments if you expect to owe $1,000 or more in federal tax for the year after withholding and refundable credits, and your withholding will cover less than the smaller of 90% of your 2026 tax or 100% of your 2025 tax. If your 2025 AGI exceeded $150,000 ($75,000 if single or married filing separately), the 100% threshold rises to 110%.

Mid-year deadlines and key numbers

• June 15, 2026 — Q2 federal and Colorado estimated tax due
• $1,000 — federal expected-owe threshold that triggers the estimated tax requirement
• 110% — safe-harbor rate for taxpayers with 2025 AGI above $150,000
• 4.4% — Colorado flat income tax rate
• ~7–8% — IRS underpayment penalty rate (interest on shortfall from due date)

Sources: IRS Publication 505; IRC §6654; Colorado Department of Revenue.

The IRS evaluates each quarter independently. Even if you overpay in Q3 or Q4, an underpayment in Q1 or Q2 can still trigger a penalty. The penalty is calculated as interest on the shortfall from the due date forward, around 7–8% annually.

What to Do Before June 15

If you have not yet made your Q2 payment, do it now. If your income in the first half of 2026 is running higher than expected, increase your Q2 payment rather than waiting to catch up later. Pay online through IRS Direct Pay, the Electronic Federal Tax Payment System (EFTPS), or by credit/debit card through an IRS-approved processor.

Colorado estimated tax payments follow the same quarterly schedule and use the state’s flat 4.4% income tax rate. Make Colorado estimated payments through the Colorado Department of Revenue website using Revenue Online.

2. Is Your Income Projection Still Realistic?

Mid-year is the point where projections based on last year’s numbers start to diverge from reality. Pull your year-to-date profit and loss statement and compare it to what you assumed when you set your estimated payment amounts in January.

Questions to ask:

• Is your gross revenue tracking ahead of or behind last year?
• Have you taken on new contracts, clients, or revenue streams that were not in the original projection?
• Have your expenses changed materially (new hires, equipment purchases, rising costs)?
• Did you receive a large one-time payment (insurance settlement, asset sale, legal recovery) that was not anticipated?

If your income is running 20% or more above your initial projection, recalculate your estimated payments now. The IRS allows you to annualize your income using the worksheet in Publication 505 and adjust payments quarter by quarter. This approach is especially useful for businesses with seasonal income, such as construction companies and hospitality businesses whose revenue concentrates in the warmer months.

If income is running lower than expected, you may be able to reduce Q3 and Q4 payments. Be careful: cutting payments based on a soft first half can create a shortfall if business picks up later in the year.

3. Are You On Track for Retirement Contributions?

Retirement contributions are one of the most effective ways to reduce taxable income for pass-through business owners. Mid-year is the time to confirm you are on track to maximize contributions, and to evaluate whether your current plan type still fits.

Key 2026 contribution limits from IRS Notice 2025-67:

For solo 401(k) plans, the combined employee and employer contribution limit is $72,000 for 2026 (not including catch-up), with the employer portion limited to 25% of compensation. The compensation cap is $360,000.

SECURE 2.0 Change for 2026: Roth Catch-Up Requirement

Starting in 2026, if your Social Security wages exceeded $150,000 in the prior year, any catch-up contributions to a 401(k) must be made on a Roth (after-tax) basis. This is a SECURE 2.0 requirement that was delayed from 2024 and takes effect this year. If your employer’s plan does not currently offer a Roth option, you may be unable to make catch-up contributions until the plan is updated. Confirm with your plan administrator now rather than discovering the issue in December. Although the statutory effective date is 2026, the IRS has provided administrative transition relief and a “reasonable, good-faith” compliance standard through 2026, with fuller enforcement expected beginning in 2027.

Mid-Year Action Items

Check whether your year-to-date deferrals are on pace to hit the limit by December 31 (for 401(k) and SIMPLE deferrals) or April 15, 2027 (for IRA and SEP contributions). If you had a strong first half and your income projection supports it, increase your contribution rate now to lock in the deduction.

If you are using a SEP IRA but your income has grown, consider whether a solo 401(k) would allow higher total contributions. The solo 401(k) combines an employee deferral ($24,500) with an employer profit-sharing component, often yielding a larger deduction than a SEP alone for owners with moderate compensation. This is a common upgrade path for professional services firms and consultants.

4. Does Your Entity Structure Still Fit?

Mid-year is also a natural checkpoint for whether your business entity structure still serves you well. This does not mean changing entities every year, but it does mean asking whether the structure you chose when you started the business still makes sense given your current income, tax profile, and goals.

Common triggers for an entity structure review include:

• Income has grown significantly. A sole proprietor or single-member LLC paying self-employment tax on $250,000 of net income may save substantially by electing S-corp status and paying a reasonable salary, with the remaining income passing through without self-employment tax. The savings can run $10,000–$15,000 per year at that income level.
• You are approaching the Colorado QBI add-back thresholds. If your AGI is nearing $500,000 (single) or $1,000,000 (joint), the interaction between your entity structure, the SALT Parity election, and the QBI deduction add-back needs modeling.
• You plan to take on partners, investors, or a co-owner. Bringing in new ownership often requires restructuring, and doing it proactively is far less expensive than doing it under time pressure.
• You are considering a business sale or succession plan. Tax treatment of a sale varies by entity type. C-corps face double taxation on asset sales; S-corps and partnerships offer more flexibility. If a sale is on the horizon, the entity conversation should happen well before the transaction.

Note that S-corp elections for 2026 were due by March 15, 2026, but late elections may still be accepted by the IRS under the reasonable cause provision if you file Form 2553 with an explanation. Talk to your CPA before assuming the window has closed.

5. Quick Wins Before Year-End

A few additional items to address while you are in planning mode:

• Review your bookkeeping. Reconcile your bank and credit card accounts through at least April. Clean books make every other planning decision more reliable.
• Document capital purchases. If you acquired equipment, vehicles, or made building improvements after January 19, 2025, confirm they are properly classified for 100% bonus depreciation. The acquisition date and placed-in-service date both matter.
• Check your 1099 readiness. The federal threshold rises to $2,000 for payments made in 2026, but you should still be collecting W-9s from every contractor and tracking payments by vendor.
• Review your health insurance and benefits. If you are self-employed and paying your own health insurance premiums, confirm the self-employed health insurance deduction is reflected in your estimated tax calculation.

Frequently Asked Questions

What happens if I miss the June 15 estimated tax deadline?

The IRS calculates an underpayment penalty on the shortfall from the due date forward, currently around 7–8% annually. Pay as soon as you can to stop the interest from compounding. You can still avoid penalty exposure by overpaying later quarters if your annualized income method shows the early underpayment was justified.

Do I need to make estimated payments if I have a salary plus self-employment income?

Possibly. If your W-2 withholding does not cover both your wage tax and your self-employment tax, you may still owe estimated payments. Many owners who have a salary from their own S-corp also have K-1 income that is not subject to withholding. Run a mid-year projection to confirm.

How is the safe harbor different for high earners?

If your 2025 AGI exceeded $150,000 (or $75,000 if single or married filing separately), you must pay 110% of last year’s tax — instead of 100% — to use the prior-year safe harbor. The 90%-of-current-year option is unchanged.

Can I still elect S-corp status for 2026?

The standard deadline was March 15, 2026, but the IRS often grants late elections under Revenue Procedure 2013-30 if you file Form 2553 with a reasonable cause statement and meet certain conditions. Talk to your CPA before assuming the window has closed.

Does the new Roth catch-up rule apply to me?

Only if your Social Security wages from the prior year exceeded $150,000 and you are making catch-up contributions to a 401(k). If both apply, the catch-up portion must go to a Roth (after-tax) account. Confirm your employer’s plan offers a Roth option.

Last reviewed by the WhippleWood tax team on May 5, 2026. Sourced from IRS Publication 505, IRS Notice 2025-67, IRC §6654, and the Colorado Department of Revenue.

How WhippleWood Can Help

A mid-year tax review does not need to be complicated, but it does need to happen before your options narrow. If your income has changed, you are evaluating a new retirement plan, or you are unsure whether your estimated payments are on track, our team can run the numbers before the June 15 deadline.

We compare your year-to-date P&L against your January projection, recalculate the safe-harbor target, and flag the entity-structure or retirement-plan changes worth making before Q3 closes. Contact WhippleWood to schedule a mid-year planning conversation.

Quick Glossary

Estimated Tax

Quarterly federal and state income tax payments made when withholding does not cover the year’s expected liability. Required when you expect to owe $1,000 or more after withholding.

AGI (Adjusted Gross Income)

Your total income minus specific adjustments (HSA contributions, self-employment tax deduction, etc.). Used to determine eligibility for many deductions and credits.

QBI Deduction (Section 199A)

A federal deduction of up to 20% of qualified business income for pass-through owners. Subject to phase-outs and Colorado-specific add-back rules above $500K (single AGI) / $1M (joint AGI).

SECURE 2.0

The 2022 retirement law that introduced super catch-up contributions, the Roth catch-up requirement for high earners, and other plan changes phasing in through 2027.

SALT Parity

A Colorado election that lets pass-through entities pay state income tax at the entity level, working around the federal $10,000 SALT cap.

Solo 401(k)

A retirement plan for self-employed owners with no employees other than a spouse. Combines an employee deferral and an employer profit-sharing contribution, often producing larger deductions than a SEP IRA.

Form 2553

The IRS election form to be taxed as an S corporation. Normally due by March 15; late elections may be accepted with reasonable cause.

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