Mid-Year 2026: 9 Tax Planning Strategies We Are Working On With Clients Right Now

2. Correcting S-Corp Reasonable Compensation and Compliance Errors

S-Corp compliance issues are among the most common items we address every year, and 2026 is no exception. The errors range from technically improper wage levels to missed elections to excess contributions into retirement accounts that trace directly back to an incorrect W-2 wage.

Three patterns account for most of what we find:

• Unreasonably low wages: The IRS requires S-Corp owner-operators to pay themselves a wage that reflects what the market would pay for equivalent work. Setting wages artificially low to maximize distributions is the most reliably flagged issue and carries real audit exposure.
• Excess retirement contributions: S-Corp owners can contribute up to $72,000 to a 401(k) in 2026, but only based on W-2 wages. When wages are set incorrectly, or if proper payroll systems were not put in place, contributions tend to follow. We’re helping families work through the tax filings and contribution roll-forwards.
• Failed or inadvertently terminated S-Corp elections: Some clients come to us operating under an S-Corp assumption that was never properly filed, or that was terminated without their awareness. Catching these mid-year avoids penalties that compound if addressed only at filing.

3. Coordinating with CPAs to Correct Prior-Year Tax Positions

This is not glamorous work, but it is some of the most consequential we do. Several clients this year had returns filed with positions that did not reflect the economic reality of their situation, and we are working alongside their CPAs to identify and correct those items before year-end forces the issue.

In practice, this work falls into three recurring categories:

• Amended filings where warranted: When a prior-year return contains a material error that changes liability, proactive amendment is almost always better than discovery on audit. We identify these early, so the CPA has time to act.
• Updating estimates based on corrected positions: A corrected prior-year return changes the safe harbor calculation for current-year estimated taxes. These need to be revised in tandem, not separately.
• Closing structural information gaps: The most persistent issues we see are not errors in any single return but information that never moved from one advisor to another. We work to close those gaps so the whole picture is in front of everyone who needs it.

4. Recalibrating Quarterly Estimated Taxes to Match 2026 Reality

A meaningful number of clients entered 2026 paying quarterly estimates based on prior-year figures that met safe harbor, but were entirely disconnected from what is actually happening in their financial lives this year. Meeting safe harbor is a floor, not a plan.

Three points frame what that recalibration involves:

• Safe harbor can still leave a large April bill: Paying 110% of prior-year tax (required when prior-year AGI exceeded $150,000) satisfies the underpayment penalty test, but it does nothing to reduce what is ultimately owed if 2026 income is substantially higher.
• Liquidity events and capital gains change the calculation entirely: A planned sale, stock vesting, or large distribution in Q3 or Q4 can make the prior-year estimate number meaningless. Estimates need to be recalculated as these events crystallize.
• Mid-year is the right time to course-correct: The Q3 and Q4 estimated tax deadlines give clients two more opportunities to close the gap before December 31. Waiting until January to assess the damage is a choice, not an inevitability.

5. Controlling Capital Gains Tax Timing and AGI Impact

The most underappreciated aspect of capital gains planning is that gains do not live in their own tax silo. Realized capital gains are included in AGI and MAGI, which means a large gain does not just trigger the applicable capital gains rate. It can push ordinary income into a higher bracket, cross NIIT thresholds, trigger IRMAA surcharges on Medicare premiums, and phase out deductions and credits that were otherwise available. The rate on the gain is only part of the cost.

Four dynamics shape how we approach this, and all four interact:

• Bracket cascade from AGI inflation: Long-term gains stack on top of ordinary income when calculating total taxable income. A client with $150,000 in wages who realizes $300,000 in long-term gains now has $450,000 in total income, which changes the rate environment for everything, not just the gains themselves. The planning question is whether that gain has to happen this year or whether it can be deferred to a year where the stack is lower.
• IRMAA is the hidden cost most clients don’t see coming: Medicare Part B and Part D premiums are adjusted upward based on MAGI from two years prior. A client who is on Medicare, or approaching it, and realizes a large gain this year will face higher premiums in 2028. The surcharge tiers are steep enough that even a single year of elevated income from a sale or distribution can add several thousand dollars annually in Medicare costs for two years running.
• Harvesting losses throughout the year: Positions held at a loss can be sold to offset gains realized elsewhere in the portfolio. This is most effective when done systematically through the year, not as a December scramble, and it directly reduces the AGI impact of the gains being offset.
• NIIT and phase-out thresholds compound the effective rate: The 3.8% net investment income tax kicks in at $200,000 for single filers and $250,000 for married couples. Above those MAGI thresholds, capital gains and investment income also begin eroding other benefits. The real marginal cost of a gain at the wrong moment is often higher than the stated rate suggests.

6. Reducing Taxable Estates Through Trust Structures

The federal estate tax exemption is $15 million per individual in 2026, meaning a married couple can shelter $30 million from federal estate tax. The annual gift tax exclusion is $19,000 per recipient. These numbers are now indexed to inflation on a permanent basis under the One Big Beautiful Bill, but the opportunity to move assets out of a taxable estate at current valuations is not permanent.

Three structures account for most of the planning we are doing in this space:

• SLATs and irrevocable gifting trusts: Spousal lifetime access trusts allow one spouse to gift assets to a trust for the benefit of the other, removing the value from the taxable estate while retaining indirect access. These require careful drafting but are among the cleaner tools available for estate reduction at scale.
• Gifting closely-held interests at compressed valuations: For clients holding business interests or real estate that have not yet reached full value, gifting now locks in a lower transfer value before further appreciation. Annual exclusion gifts layer on top of lifetime exemption gifts and require no gift tax return when kept under $19,000 per recipient.
• GRATs and other grantor trust strategies: Grantor retained annuity trusts allow clients to pass future appreciation on an asset to heirs with minimal gift tax exposure. Getting the timing and the applicable federal rate right matters in the current interest rate environment. For a worked example of how these strategies interact for a founder family, see our multi-generational estate planning case study.

7. Stacking QSBS Exclusions Before a Sale

Under post-OBBBA rules, founders holding qualified small business stock issued after July 4, 2025 can exclude up to $15 million per taxpayer per issuer from federal capital gains under Section 1202 (or $10 million dollars if issued prior). Because the exclusion is per-taxpayer, a founder with a concentrated position in a single company can potentially multiply the available exclusion through gifts to family members and non-grantor trusts, each of which qualifies as a separate taxpayer.

Three elements of the stacking structure require careful attention:

• Gifting to non-grantor trusts before any sale process begins: Each irrevocable non-grantor trust is a separate taxpayer for Section 1202 purposes. Gifts of QSBS to these trusts preserve the donor’s holding period for the recipient under Section 1202(h), and each trust gets its own $15 million cap. The gift must be completed before any sale agreement is in place, not at LOI.
• Spousal and family member transfers: Family members who receive QSBS by gift are treated as holding the stock in the same manner as the donor, including holding period tacking, and each qualifies for their own exclusion. A family of four or five, structured correctly and with sufficient time, can substantially expand the total exclusion available on a single company’s stock.
• Pennsylvania (and few other state) founders still owe state tax: Pennsylvania does not conform to Section 1202. Even when the federal exclusion eliminates federal capital gains entirely, PA state income tax still applies to the full gain at ordinary income rates. This is a recurring point of confusion that surfaces late in the planning process more often than it should.

For a detailed look at how QSBS stacking works in practice, see our founder liquidity case study and the QSBS for founders overview.

8. Coordinating Retirement Contributions Across Side Businesses and W-2 Employment

Business owners who earn W-2 income from an employer while also running a side business, or who operate multiple entities, often leave significant tax-deferred capacity on the table. The rules here are more nuanced than most people expect, and the interaction between contribution types matters.

Three rules govern how the pieces interact:

• Employee deferrals are per-person, not per-plan: The 2026 employee deferral limit of $24,500 (plus $8,000 for those 50 and over, or $11,250 for those aged 60 to 63 under the SECURE 2.0 enhanced catch-up) applies across all plans you participate in. Contributing the full amount to an employer plan and then deferring again through a side business plan creates an excess contribution.
• Employer profit-sharing contributions are entity-specific: The employer contribution side operates separately from the deferral limit and is based on net self-employment income from that specific business entity. A side business with $100,000 in net income can support meaningful employer profit-sharing contributions to a solo 401(k) in 2026 regardless of what has already been deferred through an employer plan.
• Section 199A deductions interact with contribution levels: The qualified business income deduction is calculated after retirement plan contributions reduce self-employment income. Getting the contribution level wrong affects the deduction in the other direction, and optimizing across both requires running the numbers together, not separately.

9. Timing Roth IRA Conversions for Maximum After-Tax Value

Roth conversions are one of those strategies that sound simple but require real precision on timing. Converting a traditional IRA or pre-tax retirement account to a Roth means paying income tax on the converted amount now, in exchange for tax-free growth and withdrawals later. For founders and business owners with variable income, identifying the right conversion window is the work.

Three factors shape the conversion decision for most clients:

• Low-income years are the most valuable conversion windows: A year in which ordinary income drops significantly, after a business sale, during a gap between W-2 employment, or when large deductions offset income, represents an opportunity to convert at a lower marginal rate than may be available in future years. That rate differential is the core of the conversion math.
• The OBBBA did not eliminate future rate risk: Current ordinary income tax rates are now “permanent” in the sense that there is no scheduled sunset, but Congress can still change them. Clients with large pre-tax balances who expect to be in high brackets in retirement often benefit from systematic conversion over several years rather than waiting for conditions that may not improve.
• Conversions interact with everything else on this list: A planned Roth conversion in the same year as a liquidity event, a QSBS sale, or a large capital gain can push the converted amount into a significantly higher bracket than planned. Sequencing matters, and this is one of the cleaner examples of where coordinating across strategies produces a materially different result than optimizing each one in isolation. For a detailed look at how Roth conversion strategy works for high earners, see our Roth conversion strategy overview.

Frequently Asked Questions

When should I adjust my quarterly estimated taxes?

Mid-year is the most practical time to reassess. If your 2026 income is materially different from 2025, relying on safe harbor payments means you are meeting the penalty threshold but potentially building a large April bill. The Q3 estimated tax deadline on September 15 is the last meaningful checkpoint before year-end, and recalibrating now avoids a compressed scramble in December.

What are the 2026 long-term capital gains tax rates?

Long-term capital gains are taxed at 0%, 15%, or 20% depending on total taxable income. In 2026, the 0% rate applies through $98,900 for married couples filing jointly and $49,450 for single filers. High earners above the 20% threshold also owe a 3.8% net investment income tax on investment gains, bringing the combined federal rate to 23.8%.

What is the federal estate tax exemption in 2026?

The federal estate and gift tax exemption is $15 million per individual in 2026, meaning a married couple can currently shelter $30 million from federal estate tax. The annual gift tax exclusion is $19,000 per recipient. Under the One Big Beautiful Bill Act, this exemption level is now permanent and indexed to inflation going forward.

What is QSBS stacking and how does it work?

QSBS stacking involves distributing qualified small business stock to multiple non-grantor trusts or family members before a sale, so each separate taxpayer can claim their own Section 1202 exclusion (up to $15 million per taxpayer per issuer as of 2026). Each gift must be completed before any sale process begins, and the structure requires legal and tax counsel to implement correctly.

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