Q3 Tax-Smart Moves for Self-Employed Pros

As we hit the second half of the year, Q3 presents a critical window of opportunity for self-employed professionals and business owners. This is your sweet spot for strategic planning. You've got enough data to see trends, yet enough time remaining to make meaningful changes that can significantly impact your year-end tax position.

In our recent webinar, we shared how to use Q3 to commit to your strategy and implement it in Q4 before those year-end deadlines hit. 

Watch the on-demand webinar recording

Watch the full webinar recording to maximize your time and set yourself up for a strong end of the year.

Why Q3 Matters More Than You Think

Q3 isn't just another quarter — it's your strategic reset button. By now, you should have a clear picture of where your income stands for the year and how this year is shaping up compared to previous ones. This insight is powerful because it allows you to maximize your tax strategies effectively.

Whether you're having a lower income year or a higher income year, whether your cash flow is strong or tight, Q3 is when you make those strategic decisions. Don't wait until November or December to start planning, that gives you too little time to execute the fine details that could optimize your savings.

Get Crystal Clear on Your Numbers

The foundation of any good tax strategy is clean, accurate financial data. Here's where most self-employed individuals either shine or struggle:

Clean Up Your Books

Start by reconciling your income and expenses through August. Fix any miscategorized transactions in QuickBooks or whichever accounting software you use. Most importantly, separate your personal and business expenses — clean data leads to clear decisions.

Run Your Mid-Year Tax Projection

Calculate your year-to-date profit and recalculate your Q3 estimated taxes (due September 16th – mark your calendar!). If you've underpaid so far, consider making catch-up payments to avoid that big sticker shock at year-end.

Review Your Cash Flow

Are you saving enough for taxes? The general rule is 20-30% of your income should be set aside for tax obligations. Your taxes will likely be your single largest expense as a self-employed individual. Use this Q3 analysis to set realistic Q4 revenue goals based on your findings.

Set the Right Business Structure

Your business structure isn't just a legal formality — it's a tax strategy in itself. Here's what you should be doing based on your current situation:

The S-Corp Advantage: Real Numbers

An S-Corp election is a tax election that can prevent you from overpaying self-employment taxes. Instead of paying the full 15.3% self-employment tax rate on all your business income, you pay FICA taxes only on your reasonable salary portion.

Here's a real example: If you have $120,000 in net income as an LLC, you'd pay $16,955 in self-employment taxes. But with an S-Corp election, paying yourself a $50,000 salary and taking $70,000 in distributions, you'd only pay $7,650 in FICA taxes — saving $9,305 in self-employment taxes alone.

Smart Tax Moves to Implement Now

Apply the Profit-First Model

Shift your thinking from "Sales - Expenses = Profit" to "Sales - Profit = Expense Budget." Know what you need to take home (your profit), then budget your expenses around that number. This approach forces you to focus on efficiency and ensures you're not just working harder, but working smarter.

Maximize Retirement Contributions

Retirement contributions are a powerful way to lower your tax bill while investing in your future. Don't just rely on expensing items that don't keep money in your pocket:

• Traditional IRA: $7,000 contribution limit, $1,680 in tax savings
• Solo 401(k)/SEP IRA: $21,000+ contribution limit, $5,040+ in tax savings
• Defined Benefit Plans: For high earners ($500k+), allowing up to $200,000 contributions with $70,000 in tax savings

The Solo 401(k) is often the best choice for S-Corp filers since you're already taking payroll.

Review Health and Protection Coverage

• Health Insurance: Ensure your premiums are properly documented for deductions
• HSA: If you have a high-deductible plan, max out contributions ($3,650 individual/$7,300 family)
• Life & Disability Insurance: Evaluate coverage based on your risk profile and income needs

Track Deductions Properly

Proper expense tracking is the foundation of maximizing your tax savings, yet it's where most self-employed individuals struggle the most. The difference between organized tracking and last-minute scrambling can mean thousands of dollars in missed deductions and hours of stress during tax season. Establishing good systems now will pay dividends throughout the year and make tax preparation seamless.

Here are our do's and don'ts of when it comes to tracking deductions:

Commonly Overlooked Deductions

Even tax-savvy business owners often leave money on the table by missing these three major deduction categories:

Business Use of Home

Don't settle for the simplified $1,500 deduction. Taking actual expenses for your home office can typically generate $5,000-$10,000 in additional deductions.

Business Use of Vehicle

Choose between standard mileage method or actual expense method. With bonus depreciation back at 100%, now might be the time for that business vehicle purchase.

Hiring Family Members

Legitimately employing family members can shift income to lower tax brackets and provide retirement or education benefits – potentially saving hundreds of thousands over time.

Advanced Strategies to Consider

These sophisticated tax strategies can generate substantial savings, but they require proper timing and professional guidance to implement effectively. With recent tax law changes restoring 100% bonus depreciation, this year presents unique opportunities that may not be available in future years. The key is starting the planning process now, as many of these strategies have specific deadlines and requirements that can't be rushed at year-end.

Bonus Depreciation is Back

With 100% bonus depreciation restored, consider major equipment purchases or that business vehicle you've been contemplating. A truck over 6,000 pounds can be fully expensed immediately.

Real Estate Investments

Rental properties offer multiple tax advantages, including cost segregation strategies and 1031 exchanges for property sales.

Loss Harvesting

If you have investment gains, consider harvesting losses to offset them.

Your September Action Plan

Here's your immediate checklist – tackle these items now:

✅ Clean up your books through August

• Reconcile accounts and fix categorization errors
• Separate personal and business expenses once and for all

✅ Run your mid-year numbers

• Calculate year-to-date profit
• Project your year-end position
• Identify trends and opportunities

✅ Form/update your business entity

• Start LLC formation if you're a sole proprietor
• Begin S-Corp election process if it makes sense
• Optimize S-Corp salary if you're already elected

✅ Plan Q3 estimated tax payment

• Due September 15th – mark your calendar!
• Calculate based on current year projections
• Make catch-up payments if needed

The Bottom Line

Q3 is your strategic window to maximize your tax position for the year. Clean books, the right business structure, smart retirement contributions, and proper expense tracking aren't just good business practices: they're wealth-building strategies.

Remember, it's not about what you make, it's about what you keep. Start implementing these strategies now, and you'll thank yourself come tax season. The decisions you make in the next few weeks can save you thousands of dollars and set you up for a strong finish to the year.

Adopt the CEO Mindset

The most successful self-employed individuals focus on what they do best and outsource the rest. Your time is better spent generating revenue than struggling with bookkeeping. Automate everything possible: tax savings, retirement contributions, and profit distributions.

Build your dream team of professionals who understand your industry and can proactively advise you. The right tax professional, bookkeeper, and financial planner can save you far more than they cost.

If you're looking for expert help to take everything off your plate, book a tax strategy session with the Formations team. 

Watch Our On-Demand Webinar

Catch up on the full session covering Q3 planning strategies by watching our on-demand webinar.