Most financial professionals know they should be thinking proactively about taxes.

The harder question is where to begin.

Should the firm elect S corporation status? Increase retirement-plan contributions? Hire family members? Use a pass-through entity tax election? Buy equipment before year-end? Invest in marketing? Adjust estimated payments?

During a recent Financial Experts Network webinar, CPA and tax strategist Catherine Tindall offered a practical answer: before chasing individual deductions, financial professionals need a reliable system for understanding their business, forecasting taxes, and deciding which strategies actually support long-term growth.

Her message was straightforward:

Good tax planning is not about collecting the most deductions. It is about making informed business decisions before the year is over.

Tax Planning Begins With the Books

Tax planning is only as reliable as the financial information behind it.

Tindall explained that firm owners often want sophisticated strategies while operating with incomplete bookkeeping, outdated reports, or a profit-and-loss statement that does not reconcile with the balance sheet.

That creates a fundamental problem. If the firm does not know what it has earned, what it has spent, and what it is likely to earn by year-end, it cannot accurately forecast the tax liability.

Before evaluating tax strategies, owners should have:

• Timely bookkeeping
• An accurate profit-and-loss statement
• A properly reviewed balance sheet
• Projected revenue and expenses
• Separate business accounts
• A tax forecast prepared before year-end

This may not be the most exciting part of tax planning, but it is the foundation for everything that follows.

Tindall compared doing your own bookkeeping with cooking Thanksgiving dinner. By the time the meal is ready, you may be too tired to enjoy it. Likewise, an owner who spends hours reconciling transactions may have little mental energy left to use the reports strategically.

Tax Preparation Looks Backward. Tax Forecasting Looks Forward.

Many business owners do not learn their tax liability until the return is being prepared.

At that point, most planning opportunities have already expired.

Tindall encouraged advisors to complete a tax forecast during the year. The process should estimate what the firm will owe if no changes are made, model available strategies, calculate a revised liability, and then adjust estimated payments or withholding.

That allows the owner to ask better questions:

• Is this a high-income year?
• Would it make sense to accelerate an expense?
• Should the firm preserve cash instead?
• Is there debt that should be repaid?
• Are there hiring or acquisition opportunities?
• Would paying the tax now provide greater flexibility later?

Sometimes the most strategic decision is simply paying the tax and keeping the remaining capital available.

Tax reduction is not automatically the highest priority.

S Corporations Can Help—But They Are Not a Universal Solution

S corporations were one of the most discussed topics during the webinar.

For a profitable advisory practice, an S corporation may reduce payroll taxes by dividing the owner’s economic benefit between reasonable W-2 compensation and shareholder distributions.

However, the strategy works only when compensation is properly established.

Tindall cautioned that owners frequently set their W-2 compensation either too high or too low. A salary that is unnecessarily high reduces potential payroll-tax savings. A salary that is too low can create audit and compliance risk.

She recommended using a documented, market-based compensation study rather than choosing an arbitrary percentage of revenue or profit.

S corporations also come with limitations. Multi-owner firms may find the structure restrictive because distributions generally must follow ownership percentages, and different classes of stock are not permitted.

The takeaway is not that every LLC should become an S corporation. The decision should reflect the firm’s profit, ownership structure, state rules, administrative burden, retirement-plan goals, and long-term succession strategy.

Pass-Through Entity Taxes May Create an Overlooked Deduction

Many states allow certain partnerships and S corporations to elect to pay state income taxes at the business level.

This can be valuable because the payment may become a deductible business expense before income passes through to the owner.

Tindall described this as a “one pocket to another” strategy. The owner is already paying the state tax. The planning opportunity is determining whether it can be paid in a more tax-efficient way.

These programs vary significantly by state, including:

• Eligibility
• Deadlines
• Rates
• Election procedures
• Credit calculations
• Payment timing

They generally apply to state income taxes rather than personal real estate taxes. Sole proprietors filing on Schedule C may also be excluded unless the business changes its tax classification.

For advisors in high-tax states, this is an area worth reviewing annually.

The QBI Deduction Requires Active Forecasting

The qualified business income deduction can provide a significant benefit to eligible pass-through business owners.

For financial advisors, however, the deduction may phase out at higher income levels because advisory services generally fall within a specified service trade or business.

That makes forecasting especially important.

An owner near a phaseout threshold may receive an unusually large benefit from a retirement-plan contribution, strategic business expense, or another deduction that lowers taxable income enough to preserve part of the QBI deduction.

Tindall shared examples of firms missing substantial tax savings because different income streams were not classified or analyzed correctly.

The lesson is simple: QBI should not be treated as an automatic software calculation. It should be reviewed as part of the firm’s broader tax strategy.

Hiring Family Members Must Be Real, Not Cosmetic

Hiring children or a spouse can create legitimate planning opportunities.

A teenager might assist with social media, office organization, marketing, data entry, or other age-appropriate tasks. Earned income may also make the child eligible to contribute to a Roth IRA.

A spouse who performs real work may be able to participate in the firm’s retirement plan or other employee benefits.

But the work must be legitimate.

Tindall emphasized that family members should receive market-based compensation for actual services. The firm should maintain records showing:

• What work was performed
• How compensation was determined
• When the work occurred
• How payment was made

Paying a child an arbitrary amount simply to create a deduction is not a defensible strategy.

The Best Tax Deduction May Be Growing the Business

One of the webinar’s most important ideas was that the strongest tax strategy for a growing advisory firm may be strategic reinvestment.

Instead of focusing on small deductions, the firm may be better served by spending money on:

• A new employee
• Better technology
• Marketing
• Staff development
• Professional education
• Workflow improvements
• Outside consulting
• Operational systems

These expenses may reduce current taxable income while also improving capacity, revenue, client service, and future sale value.

But the deduction alone does not make the investment worthwhile.

Tindall shared an example of an advisor who spent six figures on a marketing program that produced no clients. The tax deduction softened the loss, but it did not turn a poor investment into a good one.

Before spending money, owners should ask:

• What bottleneck does this solve?
• What return do we expect?
• How will we measure success?
• How much owner time will it require?
• Does the firm have sufficient working capital?
• Will it increase long-term enterprise value?

Owners Should Measure the Value of Their Time

Many advisors spend hours tracking small expenses while continuing to perform administrative tasks that could be delegated.

Tindall recommended completing an annual time study, even if it only covers one or two weeks.

Owners can estimate the value of their time by dividing annual W-2 compensation plus business profit by the number of hours worked. They can then compare that amount with the value of the tasks filling their calendars.

If an owner is spending substantial time on scheduling, data entry, routine email, or bookkeeping, the real cost may be the business development and client work that never happens.

Tax planning should not become another low-value activity that consumes the owner’s attention.

Smaller Deductions Still Need to Be Worth the Effort

The webinar also covered several popular deductions, including the Augusta Rule, home offices, business mileage, and charitable giving.

These strategies may be valuable, but only when the facts support them.

For example, the Augusta Rule may allow a business owner to rent a personal residence to the business for a limited number of days. However, the rent must be reasonable, the business purpose must be legitimate, and the arrangement must be documented.

A home office generally must be used regularly and exclusively for business. Vehicle deductions are limited to actual business use, regardless of whose name appears on the title.

Tindall encouraged owners to perform “napkin math” before committing to extensive recordkeeping. If the deduction is modest and the administrative burden is high, the strategy may not be worthwhile.

Retirement Contributions Should Not Be the Automatic First Move

Many tax-planning discussions begin with retirement-plan contributions.

Tindall generally considers them later in the process.

Retirement plans may produce valuable deductions and help diversify wealth away from the advisory practice. But contributions also reduce liquidity and may create obligations for employees.

Before making a large contribution, owners should consider:

• Current and future tax brackets
• Business working-capital needs
• Acquisition opportunities
• Personal liquidity
• Concentration in the practice
• Employee costs
• Pre-tax versus Roth objectives

Cash balance and defined benefit plans may offer substantial contribution opportunities, especially for older owners with few employees. They also require careful actuarial design and ongoing commitments.

The biggest contribution is not always the best business decision.

Succession Planning Is Tax Planning Too

The final portion of the webinar focused on succession.

Tindall encouraged owners to begin planning before they expect to sell. Even advisors with no immediate exit date benefit from building a firm that is less dependent on the founder and easier to transfer.

Every practice should have a contingency plan for death, disability, illness, or another emergency.

For internal succession, the parties should clarify:

• Ownership percentages
• Compensation
• Voting rights
• Management authority
• Distribution policies
• Buyout terms
• Tax consequences for the buyer and seller

Tindall recommended discussing the operating agreement early. People may believe they are aligned until they begin working through how the business will actually be managed.

For external sales, owners should obtain a valuation early, reduce key-person risk, address client concentration, and model the tax consequences of receiving a large payment.

An advisor may also be able to sell ownership while continuing to work with clients, creating a gradual transition instead of an abrupt retirement.

Tax Strategy Should Make the Business Better

The best tax plan is not necessarily the one that produces the lowest current-year liability.

It is the one that helps the owner:

• Understand the numbers
• Preserve liquidity
• Invest strategically
• Reduce unnecessary taxes
• Improve business performance
• Build a more valuable practice
• Prepare for an eventual transition

Tax planning works best when it is integrated into the business rather than treated as a year-end scramble.

For financial professionals who regularly advise clients to plan proactively, the same principle should apply to their own firms.

Five Questions Financial Professionals Ask About Tax Planning

1. When should an advisory firm begin tax planning for the year?

Planning should begin well before year-end, once the firm has reliable financial statements and a reasonable forecast of annual income and expenses. The forecast should then be updated if actual performance changes materially.

2. Is an S corporation always better than a sole proprietorship or LLC?

No. An S corporation may create payroll-tax savings when business profit materially exceeds reasonable owner compensation. The benefit must be weighed against payroll, tax-return, compliance, state, and administrative costs.

3. Do shareholder distributions reduce an S corporation’s taxable profit?

Generally, no. Distributions are typically balance-sheet transactions. The owner generally pays income tax on the S corporation’s pass-through profit whether that profit is distributed or retained, subject to basis and other tax considerations.

4. Should a firm spend money at year-end simply to receive a deduction?

No. A deduction only reduces part of the cost. The expenditure should still solve a real business problem, produce an expected return, or support the owner’s broader goals.

5. What is the most important first step in succession planning?

Create a current contingency plan. Before designing a long-term sale, the owner should establish what happens to the firm, clients, employees, and family if death, disability, or another unexpected event prevents the owner from working.