Q1 Tax Planning for Architecture Firms: How to Save More and Avoid Tax-Time Surprises

If you run an architecture or design firm, taxes often feel harder than they should. Revenue is frequently project-based. Cash flow can be uneven. Expenses add up quickly. And too often, tax planning doesn’t happen until March or April, when options are limited and stress is high. The most effective way to reduce taxes isn’t scrambling at filing time. It’s using Q1 to set the foundation for the rest of the year. When you plan early, taxes become predictable. Filing becomes routine. And your business decisions stop being driven by last-minute tax pressure.

Why Q1 tax planning matters for architecture firms

Q1 is not about executing every tax strategy immediately. It’s about deciding which strategies you want available this year and setting up the systems that make them possible.

Many high-impact tax moves:

• Require early elections or setup
• Depend on clean documentation over time
• Become risky or impossible if rushed in Q4

For architecture firms, where revenue timing can shift based on project schedules, early planning creates flexibility. You can adapt as the year unfolds instead of reacting under pressure.

Choosing the right entity structure for your architecture firm

Your entity structure affects far more than compliance. It influences:

• How much tax you pay
• Which deductions are available
• How complex and costly your filings become

One of the most common misconceptions is around S corporations.

An S corp is not a type of business. It’s a tax election. Most firms form an LLC (or corporation) and then elect to be taxed as an S corporation if it makes sense.

When S corp taxation can help architects

For many architecture and design firms, S corp taxation can reduce self-employment taxes by allowing a portion of business profit to be taken as distributions instead of wages.

However, S corps also come with tradeoffs:

• Payroll requirements
• Additional tax filings
• Higher administrative overhead

That’s why the question isn’t “Is an S corp good?”
It’s “Does an S corp make sense for my profit level, growth, and state tax rules?”

A common rule of thumb is that S corp taxation becomes more compelling once profits are consistent and meaningful (often around the $80k–$100k range, depending on the situation). For firms still ramping up or dealing with high volatility, it may be too early.

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Owner pay, QBI, and retirement planning are all connected

If your firm is taxed as an S corp, owner compensation plays a central role in your tax outcome.

Many owners assume the goal is to pay themselves the lowest possible salary to reduce payroll taxes. While that can lower Social Security and Medicare taxes, it can also limit other benefits that may be more valuable.

The Qualified Business Income (QBI) deduction

Many architecture firms qualify for the Qualified Business Income (QBI) deduction, which can allow up to 20% of business income to be deducted on the owner’s return.

As income increases, wages paid by the business can affect how much of that deduction is available. In some cases, paying yourself too little W-2 income can reduce the QBI benefit.

Architects generally have an advantage here because they are not classified as a Specified Service Trade or Business (SSTB), meaning the QBI deduction does not fully phase out the way it does for some other professions.

Retirement planning considerations

Owner pay also impacts retirement contributions. Employer-side retirement contributions are often calculated as a percentage of W-2 compensation.

That means a higher salary can unlock larger retirement contributions, which may outweigh the payroll tax savings from a lower salary.

The takeaway

Owner pay is a balancing act between:

• Tax efficiency
• Cash flow
• Retirement goals
• Compliance risk

Q1 is the right time to set a plan and define when you’ll reassess later in the year.

Why clean books lead to better tax outcomes

Clean bookkeeping is the foundation of effective tax planning.

When your books are reconciled and consistent, your CPA can focus on strategy instead of reconstructing transactions from bank statements. More importantly, clean books make it easier to identify deductions and credits that are often missed.

What “clean books” actually means

Clean books don’t require perfection. They require:

• Reconciled bank and credit card accounts
• Consistent categorization of income and expenses
• Financial statements that clearly reflect how the firm operates

Your chart of accounts does not need to be overly detailed. The goal is clarity and consistency, not complexity.

For architecture firms, clean books also help surface project-specific and industry-specific opportunities that depend on accurate revenue and expense tracking.

Managing cash flow around taxes

One of the biggest pain points for architecture firm owners is not just how much tax they owe, but when they owe it.

Project-based revenue can create cash flow mismatches if taxes are not planned throughout the year. The goal is to avoid both surprise tax bills and large refunds, which usually signal poor planning.

Two planning levers to understand

Withholding strategy
Taxes paid through withholding can offer flexibility in timing and may reduce underpayment penalties. This can be especially helpful for S corp owners who adjust salary later in the year.

Pass-Through Entity (PTE) tax elections
For eligible S corporations and partnerships in certain states, PTE elections can improve the deductibility of state taxes at the federal level.

Timing matters. Some states require elections early in the year, which makes Q1 planning critical.

Common tax strategies for architecture firms

Not every strategy applies to every firm. The key is choosing a small number that fit your business and executing them cleanly.

Common strategies for architecture and design firms may include:

• Pass-through entity (PTE) tax elections
• Retirement plan optimization
• Family payroll for legitimate work at reasonable pay
• Vehicle deductions using realistic tracking methods
• The Augusta Rule when business use of a home is documented

Execution and documentation matter more than the number of strategies used.

Q1 tax planning checklist for architecture firms

Use this checklist to guide your Q1 planning:

• Review entity structure and tax classification
• Set an owner compensation plan with a mid-year review
• Reconcile books monthly starting in Q1
• Identify eligibility for QBI, PTE, and retirement strategies
• Choose two or three strategies to implement consistently
• Run a mid-year tax projection

The outcome you’re aiming for

Strong tax planning doesn’t eliminate taxes. It eliminates surprises.

When Q1 planning is done well, tax season becomes a confirmation that the plan worked — not a scramble to fix missed opportunities.