Q1 Tax Reset: What Business Owners Should Do Now to Avoid Costly Mistakes

Q1 Tax Reset for Business Owners: Avoid Costly Mistakes in 2026

Every January, we see the same pattern. Business owners come in hot, ready to “optimize taxes,” and end up either doing too much too early or nothing at all until it is too late.

Q1 is not about executing every tax strategy you have ever heard of. It is about setting up the systems, entities, and documentation that give you options later in the year. When Q1 is done right, tax planning becomes strategic. When it is done wrong, it becomes damage control.

Here is what business owners, high earners, and real estate investors should actually be focused on at the start of the year. Read below or check out the video here:

Q1 Is for Setup, Not Panic

If you take one thing from this, let it be this. You do not get bonus points for moving fast in January. You get rewarded for being prepared.

Q1 is when you should be:

• Cleaning up your books
  
• Setting up entities correctly
  
• Planning strategies you may use later
  
• Avoiding decisions you cannot undo
  
  

Most tax mistakes happen when people lock themselves into something before they have real income data.

Clean Books Are Not Optional

Every tax strategy depends on clean bookkeeping. Full stop.

If your CPA had to hand your books back last year and tell you to fix them, Q1 is when that problem needs to be solved. Whether you do it yourself or hire a bookkeeper, your books should be current monthly.

Clean books allow you to:

• Evaluate S corp savings accurately
  
• Plan PTE payments
  
• Track real estate activity
  
• Make defensible elections
  
  

If your books are a mess, everything else is guesswork.

Augusta Rule: Plan Early, Do Not Rush Execution

The Augusta Rule is one of the most misunderstood tax strategies, mostly because people try to execute it without planning.

Q1 is the right time to:

• Set up the rental agreement
  
• Research fair market rental rates
  
• Plan how you will use your home for business purposes
  
  

You do not need to use all 14 days in Q1. You just need a plan so when those meetings or events happen, they are legitimate and documented.

Planning now prevents scrambling later.

Real Estate Investors: Track Hours Starting Now

If you are a real estate investor and think you might qualify for real estate professional status or material participation, you need to start tracking hours in Q1.

You do not need to hit 750 hours in the first quarter. What you need is a system that runs all year.

This does not need to be complicated. A simple, consistent log that records dates, activities, and hours is enough if you actually keep it updated.

Trying to recreate a year of activity at tax time is how people lose these benefits.

Form the LLC Early. Slow Play the S Corp Election.

This is where a lot of people get it wrong.

If you are running a business, you should generally form an LLC early. It is inexpensive, provides liability protection, and keeps your tax options open.

What you should not do is rush into an S corp election just because someone on the internet said it saves taxes.

An S corp introduces:

• Payroll requirements
  
• Separate tax filings
  
• Ongoing compliance costs
  
  

The savings only make sense when profits are high enough to justify that complexity.

Because the IRS allows late S corp elections, there is usually no downside to waiting until you actually know how the business is performing.

The Cost of Electing S Corp Too Early

We see this mistake every year.

Someone is confident income will be high, elects S corp status in January, and then the business does not take off. Now they are stuck paying for complexity they did not need.

They end up with:

• Extra CPA fees
  
• Payroll they did not need
  
• Minimal or no tax savings
  
  

Forming the LLC early but waiting on the S corp election keeps you flexible and avoids this trap.

S Corp Owners: Keep Salary Flexible Early

If you already have an S corp, salary planning in Q1 matters.

At the beginning of the year, income is uncertain. Paying yourself a lower but reasonable salary gives you flexibility.

You can always increase salary or issue a bonus later. You cannot undo salary that has already been paid.

Conservative early decisions usually lead to better outcomes by year end.

PTE Planning Starts Before Payments

Pass Through Entity tax elections can create meaningful state tax savings, but they also affect how and when you should pay estimated taxes.

In Q1, the key question is not how much to pay yet. It is whether you plan to use PTE at all.

If you pay taxes personally and later realize those payments should have been made at the entity level, you may have cash tied up until you file your return.

Planning early avoids timing issues, even if most PTE payments happen later in the year.

The Bottom Line

Q1 is not about doing everything. It is about doing the right things.

When you have clean books, the right entity structure, and tracking systems in place, tax planning becomes proactive instead of reactive.

That is how you avoid costly mistakes and actually benefit from tax strategy instead of paying for it.

If you want to model strategies like S corp elections, PTE, or the Augusta Rule, Gelt’s calculators can help you understand what is worth pursuing and what is not before you commit.