Year-End Tax Planning for Consulting Firm Owners

The real tax-planning window for consulting firm owners runs from September through December 31 — not the following April, when a return can only report what happened, not change it. April 15 is not a planning deadline; it is a filing deadline. By the time you sit down with your CPA in February to prepare your return, the year is closed and most tax reduction opportunities are gone.

Here is what needs to happen in that window, and in what order.

What Should You Do in the September–October Planning Window?

Step 1: Build a year-end projection (September)

Before you can make any year-end planning decisions, you need a current-year income projection. This means:

• YTD revenue as of August 31
• Projected Q4 revenue based on confirmed contracts and pipeline
• YTD business expenses already recorded
• Projected Q4 expenses

From this projection you can model your estimated full-year taxable income — which tells you which planning options are available and how much they’re worth.

Step 2: Review S-corp salary (September–October)

If your current annual revenue has grown significantly from when you set your salary, a salary increase before year-end may be warranted. Reasons to increase the salary:

• Income has grown and the current salary is no longer “reasonable compensation” by IRS standards
• You need a higher W-2 wage base to support a larger employer retirement contribution
• You need more withholding to cover a higher tax liability without making additional estimated payments

Salary changes require payroll adjustments before December 31. This is not something you can do retroactively after year-end.

Step 3: Model retirement contributions (October)

October is the planning window for retirement contributions because:

• If you don’t have a Solo 401(k) and want one for this tax year, you must establish it by December 31
• If you have a cash balance plan, the actuarial contribution amount needs to be confirmed and funded before year-end
• The employer profit-sharing contribution (Solo 401(k)) can wait until the tax return due date — but the employee deferral election must be made by December 31

What to calculate: your projected taxable income after salary and all business deductions, then determine the retirement contribution amount that optimizes between (a) maximum deduction, (b) QBI threshold positioning, and (c) cash flow impact.

Retirement account options for consulting firm owners covers the contribution math.

What Are the Key Tax Decisions to Make in November?

Solo 401(k) establishment (if new)

If you don’t have a retirement plan and want one for this tax year, November gives you time to set it up with a provider (Fidelity, Schwab, Vanguard, or a self-directed custodian) and have documentation in place before December 31. Most brokerage accounts can be opened in 1–2 weeks once you have an EIN for the plan.

QBI optimization check

If your consulting firm income falls within or near the SSTB phase-out range, model whether retirement contributions can move you below the threshold and restore QBI eligibility. This calculation should use your October projection:

• Projected taxable income (before retirement contribution)
• QBI phase-out thresholds: $201,750 (single) / $403,500 (MFJ) lower, $276,750 / $553,500 upper
• Retirement contribution needed to drop below the lower threshold

QBI deduction analysis for consulting firms covers this interaction.

Equipment purchases

Section 179 expensing and bonus depreciation (100%, made permanent under the One Big Beautiful Bill Act) require that the asset be placed in service before December 31. “Placed in service” means it’s available and ready for business use — not just ordered. If you’ve been putting off a computer, monitor setup, or other business equipment purchase, November and early December give you time to buy, receive, and deploy it in the current tax year.

Prepaid expenses

Cash-basis consulting firms can accelerate deductions by prepaying expenses in the current year for services to be received in the following year. Examples:

• Annual software subscriptions — pay in December for the coming year
• Professional memberships renewing in January — pay before December 31
• CME conference registration for next year — pay in December

Each of these captures a deduction in the higher-income current year rather than the subsequent year.

What Are the December Deadlines for Year-End Tax Planning?

The critical deadline within a deadline: For calendar-year S-corps, the last payroll of the year is often in late December. If your salary needs to be adjusted, it must be processed before the last payroll run — which at many payroll providers closes December 26 or December 27 for December 31 paychecks.

What Tax Planning Options Are Still Possible After December 31?

A few planning mechanisms survive into the following year:

Solo 401(k) employer profit-sharing: The employer contribution can be made up to the tax return due date including extensions (October 15). This is a meaningful backdoor — if December passed and you didn’t fund the employer contribution, you still have until October.

SEP-IRA: Both establishment and contribution can be made up to October 15. If you have a SEP-IRA instead of a Solo 401(k), you have maximum flexibility. The downside: no employee deferral component, so total contribution capacity is lower.

Health insurance premiums: Claimed on the return at filing — no December 31 deadline for the deduction itself, though the premiums must have been paid during the year.

What Is the Most Common Year-End Tax Planning Mistake?

The most common year-end planning failure: consulting firm owners who had a strong year realize in January — when they’re gathering documents for their CPA — that they could have reduced their tax bill significantly if they’d acted in Q4.

By January:

• The salary can no longer be adjusted retroactively for the prior year
• The Solo 401(k) employee deferral opportunity is gone
• New plan establishment is too late for the prior year
• Equipment placed in service after December 31 doesn’t count for the prior year

Planning in January or February produces good documentation of last year’s tax liability. It does not produce a lower tax bill. The planning that produces a lower tax bill happens in Q3 and Q4, when there is still time to act.

This article is educational and reflects general tax principles as of 2024. Consult a licensed CPA for advice specific to your situation.