Your Mid-Year Tax Checkup: Six Numbers Every Michigan Business Owner Should Review in July

July feels like summer. It does not feel like tax season. That is precisely the problem.

By the time most Michigan business owners think seriously about their taxes, it is late November, the holidays are closing in, and the strategies that would have made a real difference have quietly expired. A Solo 401(k) that could have been opened in July? Closed window. A Michigan flow-through entity tax election that would have turned a state tax bill into a federal deduction? Also gone. A bonus depreciation purchase that needed twelve weeks of lead time for equipment delivery? Too late.

This article is a diagnostic tool, not a lecture. Whether you are anxious about a bigger-than-expected tax bill, confused about which strategies apply to your situation, or proactively planning because you had a strong first half, the six numbers below give you a concrete starting point. Pull them, write them down, and you will know exactly what your next conversation with a CPA needs to cover.

If you want to skip straight to the action checklist, jump to the final section.

Why July Is the Last Realistic Window to Change Your 2026 Tax Bill

July 1 is not just the midpoint of the calendar. It is the midpoint of your tax year, which means you have roughly the same amount of time ahead of you as you have already spent. That symmetry matters because most tax strategies require lead time that most owners underestimate.

After October, several doors close entirely. SIMPLE IRA plans for 2026 must be established by August 1. Michigan flow-through entity tax elections and estimated payments need to happen during the tax year itself, not after it ends. Equipment purchases intended to generate bonus depreciation need to be placed in service before December 31, and getting from purchase order to operational asset can take six to twelve weeks for anything that requires installation or customization.

A December tax review, by contrast, leaves you with a short list of options: make a retirement contribution if your plan already exists, prepay some deductible expenses, and hope your income estimate was accurate. That is a narrow menu.

The good news is that July is not a deadline. It is an opening. If you are already tracking the five numbers you should already be tracking each month, most of what follows will take you less than an hour to pull together. For everyone else, start with your year-to-date profit and loss statement and work through the six numbers below.

Number One: Your Year-to-Date Estimated Tax Payments

The first question is simple: how much have you actually paid toward your 2026 tax liability, and is it enough to avoid a penalty?

In QuickBooks Online, look for a line labeled "Taxes Paid" in your equity section, or a dedicated equity account called "Estimated Tax Payments" if your bookkeeper set one up. The total should reflect payments made on April 15 and June 16, the first two quarterly deadlines for 2026.

Now compare that total to your safe harbor threshold. The IRS offers two options. The first: pay at least 100% of your prior-year total tax liability, spread across four equal installments. The second: if your 2025 adjusted gross income exceeded $150,000, the threshold rises to 110% of prior-year liability. Divide your prior-year total tax by four to find the minimum each quarterly payment should have been.

Why does this matter right now? The underpayment penalty rate for Q2 2026 is 8%. In plain terms, a $10,000 shortfall accrues roughly $800 in penalties for the year if left uncorrected. That is not a catastrophic number, but it is real money, and it is entirely avoidable.

The next actionable quarterly deadline is September 15. That gives you roughly ten weeks to recalculate your projected 2026 income, figure out where you stand relative to the safe harbor, and make a correcting payment if needed. A Brighton-area general contractor who had a strong spring and expects a busy Q3 should run this calculation now, not in October.

For a complete walkthrough of calculating your 2026 estimated tax payments, including the worksheet for sole proprietors and S-corp owners, see our dedicated guide.

Number Two: Your Retirement Contribution Runway

Retirement contributions are the single largest above-the-line deduction most small-business owners can still fully control at mid-year. The 2026 Solo 401(k) contribution limit is $70,000. If you are age 50 or older, add a $7,500 catch-up contribution for a total of $77,500. Both numbers reduce your federal taxable income dollar for dollar, and they reduce your Michigan taxable income at the state's flat 4.25% rate on top of that.

Here is the number to calculate: take your year-to-date net self-employment income, multiply by 92.35% to account for the deductible portion of self-employment tax, then multiply by 25% to find your approximate employer contribution limit. Add your elective deferral, which can be up to $23,500 for 2026, to find your total contribution ceiling. Subtract what you have already contributed, and you have your remaining runway.

A few plan-type details matter in July specifically. A Solo 401(k) must be established before December 31, 2026 to accept contributions for the year, but the actual funding can wait until the tax filing deadline including extensions. If you do not have a plan yet, July is a good month to open one while the administrative work is unhurried. A SEP-IRA is more flexible: you can open it and fund it all the way up to the filing deadline including extensions, which for most sole proprietors means October 2027 with an extension. SIMPLE IRAs are the exception. The August 1, 2026 deadline to establish a new SIMPLE IRA plan for the year is weeks away, not months.

A self-employed consultant in Ann Arbor who nets $120,000 this year has a meaningful amount of contribution room available. Working out exactly how much, and planning the cash flow to fund it, is the kind of calculation that belongs in a July review rather than a February panic.

Number Three: Your Section 179 and Bonus Depreciation Opportunity

The 2026 bonus depreciation rate is 40%. That number deserves a moment of context. In 2023, it was 80%. In 2024, it was 60%. The Tax Cuts and Jobs Act scheduled a phased reduction that will continue until bonus depreciation reaches zero, and Congress has not yet intervened to stop the decline. Every year you wait to purchase qualifying assets, the first-year deduction shrinks.

Bonus depreciation applies to both new and used qualifying property, as long as the asset is new to you as the taxpayer. Qualifying categories include equipment, machinery, computers, off-the-shelf software, and certain vehicles. The critical rule: the asset must be placed in service, meaning operational and in actual use in your business, before December 31, 2026. A piece of equipment that arrives in your shop on December 28 and sits in its crate does not qualify.

Section 179 works differently. It allows full immediate expensing of qualifying assets up to the annual limit, rather than the percentage-based approach of bonus depreciation. The two can be layered: Section 179 applies first, then bonus depreciation applies to any remaining basis. For most small businesses, Section 179 is the simpler and more predictable tool.

Why does July matter here? A Brighton-area landscaping company that needs a new skid steer should start the purchase process now. Getting from quote to financing approval to delivery to operational setup can easily take eight to twelve weeks. A December decision almost certainly means a January delivery, which pushes the deduction into 2027 at a bonus rate that will be even lower by then.

Identify the equipment your business genuinely needs for the next twelve to eighteen months. If the math works, July is the window to start the process.

Number Four: The Michigan Flow-Through Entity Tax Election and Your SALT Workaround

The federal Tax Cuts and Jobs Act capped the state and local tax deduction for individuals at $10,000. For Michigan S-corporation and partnership owners who pay state income tax on business income, this cap eliminated what used to be an unlimited federal deduction. A restaurant owner in Howell with $300,000 in pass-through income paying Michigan tax at 4.25% owes $12,750 in state income tax, but can only deduct $10,000 of it federally. The remaining $2,750 is paid with after-tax dollars.

The Michigan flow-through entity tax, available to S-corporations and partnerships, offers a direct workaround. When the entity elects to pay Michigan income tax at the entity level rather than passing the liability through to individual owners, that payment becomes a federal business deduction, not a personal itemized deduction. It bypasses the $10,000 cap entirely.

The mechanics require action during the tax year. The election and at least one estimated PTE tax payment must be made during 2026 to generate a federal deduction for 2026. Filing the election in April 2027 along with the return does not create a 2026 deduction. Many Michigan business owners have already elected PTE status, which is the right first step, but have not been deliberate about the timing of their estimated PTE payments. A mid-year payment made in July or August is both timely and administratively manageable.

July is the last comfortable window to elect, calculate an accurate mid-year payment, and remit it without rushing. The math for this calculation involves your entity's projected 2026 Michigan taxable income, the applicable rate, and the credit mechanism that prevents double taxation at the individual level. Getting those numbers right is exactly the kind of work a focused mid-year review with a CPA covers.

If the PTE election is new territory for your business, contact us to schedule a mid-year review before the Q3 window closes.

Number Five: Your Payroll Records and the Social Security Wage Base

The 2026 Social Security wage base is $176,100. Once a W-2 employee's wages reach that threshold, the employer's FICA obligation drops from 7.65% of wages to 1.45% for Medicare only. For businesses with higher-compensated employees, or owner-employees of S-corporations, crossing the wage base mid-year changes the cash flow math for the second half of 2026.

A mid-year payroll review should confirm three things. First, that payroll tax deposits are on schedule with IRS deadlines, since late deposits carry their own penalty structure. Second, that W-2 wage totals reconcile to your payroll registers, because discrepancies discovered in January create a compressed correction timeline. Third, that FUTA liability is being accrued correctly. Michigan has historically appeared on the IRS watch list for states with outstanding federal loan balances, which can trigger a FUTA credit reduction and increase the effective federal unemployment tax rate retroactively.

For S-corporation owners, the payroll review carries additional stakes. The IRS requires owner-employees to receive a reasonable compensation salary before taking distributions, because salary is subject to payroll taxes and distributions are not. Setting that salary too low is a known audit trigger. Reviewing and adjusting the salary in July, rather than in December, allows any correcting payroll entries to be spread across Q3 and Q4 rather than stacked into a single year-end adjustment that looks artificial.

Understanding how your business structure affects the math on self-employment tax is the foundation for getting the salary-versus-distribution split right. It is also worth reviewing whether your worker classifications will hold up under scrutiny, since a mid-year payroll review is the natural moment to catch any 1099 arrangements that may not survive a closer look.

Number Six: The Income-Versus-Deduction Timing Decision

Every small-business owner has two levers available before December 31: defer income into 2027, or accelerate deductions into 2026. The right answer depends on where you expect your income to land this year versus next.

Deferring income makes sense when you expect lower income in 2027, or when a major deductible event, such as a large equipment purchase, a retirement contribution catch-up, or a planned business expense, is already planned for next year. Accelerating deductions makes sense when your 2026 income is running higher than expected, or when deduction thresholds like the Social Security wage base or retirement contribution limits are more favorable this year.

For Michigan business owners, the state income tax math is straightforward: the 4.25% flat rate does not change with income level, so the timing question is almost entirely a federal decision. Your federal marginal rate is the primary variable. A sole proprietor who lands in the 24% bracket this year but expects to be in the 22% bracket next year has a real incentive to pull deductions forward.

Specific tactics worth reviewing in July: prepaying deductible business expenses before December 31, including subscriptions, insurance premiums, and professional dues; timing the delivery of a year-end invoice to January rather than December if cash flow allows; and deferring a December bonus payment to early January for employees who have consented. None of these are aggressive moves. They are timing decisions that require a little foresight and a clear picture of where your income will land.

A family-owned professional services firm that can see its full-year revenue from July's vantage point is in a much better position to make these calls than one that is guessing in December.

Take One Action This Week: Schedule Your Mid-Year Review Before August 15

Here are the six numbers in a single reference list:

1. Year-to-date estimated tax payments versus your safe harbor threshold
2. Remaining retirement contribution room under your current plan type
3. Equipment or software purchases that could qualify for Section 179 or 40% bonus depreciation
4. Your Michigan PTE election status and any mid-year estimated PTE payment due
5. Payroll deposit compliance, wage base tracking, and S-corp owner reasonable compensation
6. Your projected year-end income and whether it makes sense to defer income or accelerate deductions

The next step is concrete and low-friction. Before you do anything else, pull your year-to-date profit and loss statement from QuickBooks Online or your bookkeeper, and write down each of these six numbers. You do not need a CPA to do that part. You do need one to interpret what the numbers mean for your specific situation and decide which strategies are worth pursuing before the calendar moves past August.

We offer a focused 30-minute mid-year tax review designed for exactly this moment. The deliverable is a short list of the strategies that apply to your business and a clear set of next steps before year-end. August 15 is the soft deadline: after that date, the window for PTE elections, retirement plan setup, and equipment lead time begins to compress meaningfully.

Schedule your 30-minute mid-year tax review before August 15. Bring your year-to-date P&L and the six numbers above, and we will take it from there.