Tax Planning Attorney and CPA for Individuals, Families and Small Businesses

Preparation is retrospective: it reports the year's transactions correctly on a return. Planning is prospective: it looks at a decision you have not yet made (sell the building, elect S status, fund a retirement plan, give property to a child) and works out the after-tax result of each way of doing it. Planning is done in a legal engagement here, which means the advice is privileged to the extent it is legal advice, and the documents that carry it out (the operating agreement, the installment note, the trust) are drafted by the same person who ran the numbers. Your current preparer can continue to file the returns, with the entries explained.

September or October, with the year's actual figures to date. Most moves have to be completed by December 31: equipment purchases, retirement plan contributions for employees, charitable gifts, harvesting losses, paying deductible expenses. A few run past year end (IRA and SEP contributions, the S election for next year), but by December the list of what can still be done is short. A client who calls in April is planning for the following year.

Five come up repeatedly: choosing the entity and, where profit justifies it, the S election to limit employment tax; the qualified business income deduction of up to 20 percent, which the 2025 federal tax act made permanent; a retirement plan sized to the business (a solo 401(k) allows $24,500 in employee deferrals for 2026 plus an employer contribution); timing income and expenses around rate brackets and the Illinois flat tax; and planning the eventual sale so that goodwill is taxed as capital gain rather than ordinary income. Which ones matter depends on the business's profit and the owner's other income.

When the business's profit comfortably exceeds a reasonable salary for the owner. Below that, the payroll cost and the compliance burden exceed the employment-tax saving. The election is filed on Form 2553 within two months and 15 days of the start of the tax year, and Illinois follows the federal election while still charging its 1.5 percent replacement tax at the entity level. The break-even arithmetic and the reasonable-compensation rules are on the S-corp election page.

Pre-tax contributions reduce taxable income in the year they are made, and the growth is untaxed until withdrawal. For 2026 the IRS limits are $24,500 in 401(k) employee deferrals, with an $8,000 catch-up at 50 and over and $11,250 at ages 60 to 63; $7,500 for an IRA with a $1,100 catch-up; and $17,000 for a SIMPLE plan. A business owner can add an employer contribution in addition to the employee deferral, and Illinois does not tax qualified retirement income when it is eventually withdrawn, which makes the deferral worth more here than in most states.

Decide the structure before the contract. Real property held for business or investment can be exchanged for other such property under Section 1031 with the gain deferred, provided the replacement is identified within 45 days and received within 180 days of the sale. A sale with at least one payment after the year of sale can be reported on the installment method (Form 6252) so the gain is taxed as the payments arrive, though depreciation recapture is taxed in the year of sale. A business sale divides into asset classes on Form 8594, and the allocation sets how much is capital gain and how much ordinary income.

Through the step-up in basis. Property you still own at death takes a new basis equal to its date-of-death value (26 U.S.C. 1014), so the built-in gain disappears; property you give away during life keeps your basis, so the recipient pays the gain when they sell. Lifetime giving reduces a taxable estate, which matters in Illinois above the $4,000,000 exclusion even though the federal exclusion is $15,000,000 for 2026, but giving appreciated property can cost the family more in income tax than it saves in estate tax. The two plans are run as one calculation here.