Many taxpayers wait until the fourth quarter to think about taxes. That can be too late for some of the best planning moves. Mid-year planning allows you to:

• project this year’s tax liability while there is still time to respond;
• adjust wage withholding or quarterly estimates before underpayment penalties build;
• revisit retirement contribution strategy;
• manage capital gains, losses, and charitable gifts more deliberately;
• evaluate credits and deductions affected by adjusted gross income (AGI); and
• for business owners, align equipment purchases, accounting methods, and compensation decisions with tax and cash-flow goals.

For Individuals: Start With a Tax Projection

A mid-year tax projection should include more than wages. It should also capture:

• bonuses, commissions, and self-employment income;
• investment income, capital gains, and losses;
• retirement distributions or Roth conversions;
• itemized deductions or expected use of the standard deduction;
• education and child-care expenses;
• and any large one-time events such as a home sale, business sale, or major charitable gift.

This projection becomes the roadmap for deciding whether to increase withholding, make or reduce estimated payments, harvest losses, or accelerate deductions.

Estimated Taxes and Safe Harbors: Avoiding Penalties

Under the pay-as-you-go system, individuals generally must prepay enough tax during the year through withholding and/or estimated tax payments. The underpayment penalty rules are often manageable if you monitor them early enough.

In general, the estimated tax penalty can be avoided if your required annual payment equals the lesser of:

• 90% of your current-year tax, or
• 100% of your prior-year tax 

If your prior-year AGI exceeded $150,000 ($75,000 if married filing separately), the prior-year safe harbor generally increases to 110% of prior-year tax.

There is also generally no penalty if the balance due after withholding is less than $1,000.

For many employees and retirees, the easiest mid-year fix is not an estimated payment—it is increasing withholding. Withheld tax is generally treated as paid ratably throughout the year, even if you increase it later in the year. That can make withholding a useful tool for catching up after underwithholding in the first half of the year.

A mid-year “paycheck checkup” is often worthwhile after major life or income changes. Employees can use the IRS withholding estimator and submit a revised Form W-4 to adjust withholding.

Retirement Contributions: One of the Best Mid-Year Levers

Retirement planning is not just for December. Mid-year is an ideal time to verify whether contributions are on pace and whether more tax-efficient choices are available.

Current-Year Limits



• The elective deferral limit for 401(k), 403(b), and 457 plans is $24,500 
• The limit for traditional and Roth IRAs is $7,500.
• Catch-up contributions may also apply for eligible older taxpayers.

For self-employed taxpayers, some retirement plans may still be adopted by the return due date, including extensions, depending on plan type and timing rules.

Capital Gains and Loss Harvesting: Don’t Wait Until December

Capital gain planning is not only a year-end exercise. Mid-year is a good time to review taxable brokerage accounts and identify unrealized gains and losses.

If you have realized gains already this year, harvesting losses can offset those gains. If losses exceed gains, up to $3,000 of net capital loss can generally offset ordinary income ($1,500 for married filing separately), with excess losses carried forward.

For higher-income individuals, loss harvesting may also reduce exposure to the 3.8% net investment income tax (NIIT).

A tax loss generally is not recognized if you sell securities and buy substantially identical securities within the 61-day wash sale window—30 days before or 30 days after the sale.

Charitable Giving: Timing and Asset Choice Matter

Charitable planning can often be improved significantly with better timing and better choice of property.

Because many taxpayers claim the standard deduction, charitable contributions may produce more tax value if you bunch multiple years of giving into one year to exceed the standard deduction.

Mid-year is a good time to decide whether the current year is an “itemize” year or a “standard deduction” year.

Donating long-term appreciated securities or other long-term capital gain property can be more tax-efficient than donating cash. In the right circumstances, the donor may receive a fair market value deduction and avoid tax on the built-in capital gain.

This can be especially attractive for taxpayers sitting on large unrealized gains in investment accounts.

Cash gifts charged to a credit card are generally deductible in the year charged, even if the bill is paid later. Mid-year planning gives you time to decide whether to accelerate donations into the current year.

Taxpayers age 70½ or older may be able to make qualified charitable distributions directly from an IRA to eligible charities. For 2026, up to $111,000 per individual may qualify.

A QCD does not generate a charitable deduction, but it can still be highly tax-efficient because the distribution is excluded from income.

For tax years beginning after 2025, nonitemizers may be allowed a limited charitable deduction for cash gifts, while itemizers may face a new floor on charitable deductions. 

For Small Businesses: Mid-Year Planning Is About Cash Flow and Flexibility

For sole proprietors, partners, LLC owners, and S corporation shareholders, mid-year planning is especially valuable because the business and personal tax picture are closely connected.

Quarterly Estimates and Annualization for Business Owners

Self-employed individuals and pass-through owners generally need to pay quarterly estimated taxes to cover income tax, self-employment tax, and in some cases NIIT or additional Medicare tax.

Equipment Purchases: Section 179 vs. Bonus Depreciation

If your business expects equipment or other fixed-asset purchases, mid-year is the right time to decide how those purchases should be structured under IRC §§179 and 168(k).

Section 179 is often useful because it can be elected asset by asset, giving more flexibility than bonus depreciation.

Bonus depreciation is generally applied by asset class rather than asset by asset. Under current law, 100% bonus depreciation is available for qualifying property.

Accounting Method Opportunities for Eligible Small Businesses

Eligible small businesses may have mid-year opportunities to simplify tax accounting and accelerate deductions.

Businesses that meet the gross receipts test may be able to change from the accrual method to the cash method and also simplify inventory and UNICAP treatment.

A mid-year review gives you time to determine eligibility, model the tax impact, and coordinate the accounting method change with return preparation and cash-flow planning.

Choosing the Right Retirement Plan for a Small Business

For business owners, the “best” retirement plan depends on whether there are employees, how much the owner wants to contribute, how predictable profits are, and how much administrative complexity is acceptable.

A one-person 401(k) can be very attractive for an owner-only business or a business employing only the owner and spouse. It often allows larger contributions than a SEP or SIMPLE at comparable income levels and can offer annual flexibility.

A safe harbor 401(k) can help a small employer avoid annual nondiscrimination testing, making it appealing where rank-and-file participation is unpredictable.

However, safe harbor plans generally must be adopted before the start of the plan year, although certain mid-year changes are permitted.

SEP and SIMPLE arrangements remain useful for many small businesses because they are comparatively straightforward, though contribution limits and flexibility may be lower than with a one-person 401(k).

Owner Compensation and Benefits: Get the Structure Right

How an owner takes cash out of the business affects income tax, payroll tax, self-employment tax, QBI, and retirement-plan calculations.

S corporations can reduce payroll tax exposure because distributions generally are not subject to self-employment tax. But shareholder-employees must still receive reasonable compensation. If wages are set too low, the IRS may recharacterize distributions as wages.

This is not just a payroll tax issue. Reasonable compensation also affects the owner’s qualified business income analysis.

Unlike S corporation distributions, sole proprietors and partners generally remain exposed to self-employment tax on business earnings 20. In partnerships, guaranteed payments also are generally not treated as qualified business income for §199A purposes 28.

The self-employed health insurance deduction remains an important planning item for sole proprietors, partners, and more-than-2% S corporation shareholders.

For more-than-2% S corporation shareholders:

• the policy must generally be paid by or reimbursed by the corporation;
• the premium must be included on Form W-2 as wages, though not subject to FICA for this purpose;
• and the shareholder’s deduction is limited by wages from that business.

For other self-employed individuals, the deduction is limited by earned income from the business that established the health plan.

Final Thought

Good tax planning is rarely about chasing one dramatic move in December. More often, it is about making a series of informed adjustments while the year is still in progress. Mid-year is the point when those adjustments are still available, the numbers are more reliable, and the choices can be made without rushing.

If your income, investments, family situation, or business results have changed since the start of the year, a mid-year review can help you turn that information into practical tax savings and fewer surprises at filing time.

Finally, remember that this article is intended to serve only as a general guideline. Your personal circumstances will likely require careful examination. You should schedule a meeting with your adviser to assist with all your tax planning needs.