Waiting until December is already too late for many tax-planning opportunities.
By then, equipment has been purchased, distributions have been taken, compensation has been paid, and estimated tax payments may have been based on numbers that no longer resemble the current business.
The tax return can accurately report those decisions. It cannot go back and change them.
That is what makes Q3 tax planning so valuable. By the third quarter, businesses have enough actual financial information to project where the year is headed while still having time to make informed decisions before year-end.
Tax planning isn’t about finding deductions at the last minute. It’s about understanding where the year is going while you still have options.
Key Takeaways
- Q3 provides enough year-to-date data to build a meaningful tax projection while leaving time to act.
- Growing companies shouldn’t assume last year’s estimated tax payments still reflect this year’s business.
- Entity-level tax decisions, capital purchases, retirement planning, and estimated taxes should be reviewed before year-end.
- OBBBA created or restored important planning opportunities involving bonus depreciation and domestic R&D expenditures.
- A tax deduction should support a good business decision—not justify a bad investment.
Why Last Year’s Tax Return Isn’t a Tax Plan
Consider a manufacturer having a record year.
Profitability is well ahead of the prior year, but the owners continue making estimated payments based largely on last year’s results. Meanwhile, they take distributions and purchase equipment.
When the return is prepared the following spring, the tax liability is substantially higher than expected—but much of the cash that could have covered it has already left the business.
Nothing necessarily went wrong with the return. The conversation simply happened too late.
A Q3 projection could have identified the increased profitability, estimated the likely liability, and allowed the owners to adjust remaining payments and cash reserves.
Growing companies are moving targets. Revenue, profitability, compensation, headcount, equipment purchases, R&D spending, multi-state activity, and distributions may all look different from the prior year.
Last year’s return tells you where the business was. Q3 planning helps determine where it is going. Relying on tax preparation instead of forward-looking planning is one of the most common tax mistakes growing companies should avoid, because many of the decisions affecting the eventual tax bill have already been made by filing season.
1. Revisit Entity-Level Tax Decisions
As companies grow, entity planning becomes less about choosing a business structure for the first time and more about making sure the existing structure still fits how the company operates today.
For a $5 million to $10 million company, that might mean revisiting reasonable compensation for S corporation owners, evaluating state pass-through entity tax elections, planning distributions against basis and expected tax obligations, or considering the tax consequences of ownership changes and transactions between related entities.
In some cases, significant changes in ownership, outside investment, or capital structure may also create a reason to reconsider the company’s existing tax classification.
These decisions are much easier to evaluate proactively than to unwind after a transaction has already occurred.
2. Use Bonus Depreciation Strategically
OBBBA permanently restored 100% bonus depreciation for certain qualifying property acquired and placed in service after January 19, 2025.
That can make timing especially relevant for manufacturers investing in production machinery, CNC equipment, automation, robotics, tooling, or warehouse equipment. Biotech and life sciences companies may face similar decisions involving laboratory equipment, instrumentation, computers, and certain facility improvements.
But bonus depreciation shouldn’t convince a company to make an unnecessary purchase. Buying a $400,000 machine simply to generate a deduction still means spending $400,000.
The better question is: If you’re already planning to make the investment, when should it be placed in service?
Q3 gives management time to evaluate the investment on its business merits first and its tax consequences second.
3. Start Retirement Planning Before Year-End
Retirement planning can create meaningful opportunities for profitable owners, but the rules and deadlines vary by plan.
A SEP, for example, can generally be established as late as the business’s income tax return due date, including extensions, and contributions generally can be made by that extended due date. Other strategies may involve a 401(k), profit-sharing arrangement, or, for certain highly profitable businesses, a cash balance plan.
The reason to start in Q3 isn’t that every contribution must happen before December 31. More sophisticated strategies can require planning, modeling, and an understanding of where annual profitability is likely to land.
The funding deadline and the planning deadline aren’t always the same.
4. Recalculate Estimated Taxes
One of the simplest Q3 exercises is updating estimated taxes using current-year results.
An owner whose business substantially outperformed last year may discover that current payments will leave a large balance due. A more conservative owner may discover they have overpaid and unnecessarily removed cash from the business.
Both problems often start with the same assumption: last year’s numbers are still relevant. If income has already changed enough that an estimate was missed or may no longer be appropriate, understanding what happens when you miss a quarterly estimated tax payment can help clarify the potential consequences and next steps.
Updating the projection allows remaining payments and cash reserves to reflect the company that exists today rather than the company that filed last year’s return.
This is also why tax planning should be connected to broader cash-flow management. Understanding why profitable companies can still run out of cash becomes especially important when significant tax payments, distributions, and capital investments are competing for the same cash.
5. Don’t Overlook the OBBBA R&D Changes
For biotech, life sciences, and innovative manufacturers, one of OBBBA’s most significant changes may be the treatment of domestic research expenditures under §174A.
For tax years beginning after December 31, 2024, qualifying domestic research or experimental expenditures can generally be currently deducted. Taxpayers may alternatively elect to capitalize and amortize those expenditures over at least 60 months.
But the deduction is only part of the planning opportunity. Companies also need to know what they actually spent. Payroll, contractors, supplies, software development, and other research-related costs may need to be identified and properly documented.
Q3 is an opportunity to identify documentation gaps while the activity is still happening rather than trying to reconstruct everything months later.
What Q3 Tax Planning Looks Like in Practice
Consider a growth-stage manufacturer whose Q3 projection shows profit tracking significantly ahead of the prior year.
The company discovers that its estimated payments aren’t keeping pace. It also has production equipment scheduled for purchase early the following year and has increased its domestic R&D activity without consistently tracking the associated expenditures.
That creates three conversations while options remain open: reserve appropriately for taxes, evaluate whether the already-planned equipment investment should be placed in service sooner, and improve R&D documentation before year-end.
There is no last-minute tax trick. There are simply better decisions made at a time when they can still affect the outcome.
Don’t Wait Until December to Find Out What the Year Looks Like
Good tax planning isn’t about generating the lowest possible tax bill at any cost. It’s about understanding the tax consequences of business decisions before those decisions become irreversible.
Sometimes that means accelerating an investment. Sometimes it means waiting. Sometimes the best decision is simply reserving more cash because the business is having an excellent year.
By Q3, companies have something they didn’t have in January: meaningful information about how the year is actually performing. And they still have something they won’t have the following spring: time to act on it.
If the first time we’re talking seriously about your year-end tax strategy is in December, we’re not planning anymore. We’re largely documenting what already happened.
