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S Corp Owners: Make This Move Before December 31 to Save on Taxes
If your law firm is taxed as an S Corporation, you still have time to save thousands in taxes before the year ends—but only if you act now.
At Prestige Accounting and Consulting, we work exclusively with lawyers. And if there’s one thing we know, it’s that S Corp owners often leave money on the table in Q4 by skipping these critical end-of-year tax-saving moves.
Here’s what you need to review, adjust, and document before December 31, 2025, to reduce your tax bill and keep your firm compliant.
Why This Matters for S Corp Law Firm Owners
When your firm is taxed as an S Corporation, you pay yourself in two ways:
- A reasonable salary (subject to payroll taxes like Social Security and Medicare)
- Owner distributions (not subject to self-employment tax)
Getting the balance wrong can trigger:
- An IRS audit for underpayment of payroll taxes
- Overpayment of taxes if you’re taking too much salary
- Compliance issues if distributions outpace profit
You want to optimize this balance, stay compliant, and document your decisions.
Key Tax Moves to Make Before Year-End
1. Review Your Officer Salary for “Reasonableness”
The IRS requires that S Corp owners take a reasonable salary for the services they provide. But what’s reasonable?
Factors to consider:
- Your firm’s net income
- The services you personally perform
- Comparable salaries for managing attorneys in your area
- Whether you’re full-time or part-time
Warning: If you’ve paid yourself no salary in 2025 but took distributions, that’s a red flag for audit.By adjusting your salary before December 31:
- You can increase or decrease payroll for tax strategy
- Capture any underpaid amounts to reduce audit risk
- Avoid having to backpay and amend forms in the new year
Tip: If you’re underpaid, you can do a “bonus payroll” run before year-end to catch up.2. Time Your Final Distribution Intentionally
Distributions are only allowed when your S Corp has positive retained earnings and sufficient cash. You want to:
- Take advantage of Q4 cash flow by making your final distribution in 2025
- Avoid over-drawing (especially if you’re not reconciled with your books)
- Consider delaying or reducing draws if your firm has an IRS payment plan or tight liquidity
Important: If you took distributions but no W-2 salary, the IRS may reclassify all your draws as wages—and hit you with back payroll taxes, interest, and penalties.3. Run Year-End Financials Before You Decide Anything
You can’t make smart tax moves without knowing your numbers.
Pull these reports:
- Profit & Loss Statement (Jan–Nov 2025)
- Year-to-date officer payroll totals
- Distributions already taken
- Cash flow forecast for Q1 2026
From here, your CPA can:
- Identify safe draw amounts
- Recommend a salary adjustment
- Estimate Q4 payroll tax obligations
Want help pulling this together? 4. Maximize Retirement Contributions (and Deduct Them)
If you’re paying yourself a W-2 salary, you may be eligible to:
- Contribute to a Solo 401(k) or SEP IRA
- Make employer contributions that are tax-deductible to your S Corp
- Defer personal income into tax-advantaged accounts
For 2025:
- Solo 401(k) employee deferral limit: $23,000 (or $30,500 if age 50+)
- Employer contribution limit: Up to 25% of compensation, capped at $70,000 total
These must be documented and processed before year-end for the deduction to count.5. File Year-End Payroll and Prep for W-2s
The IRS requires S Corps to:
- File Form W-2 and Form W-3 by January 31, 2026
- Submit Form 941 (quarterly payroll return) for Q4
- Submit Form 940 (annual unemployment tax return)
Missing these creates compliance problems and late fees.
If you use payroll software (like Gusto or ADP), review settings now to ensure:- All compensation is categorized correctly
- Bonuses are taxed at the right rate
- Contributions to retirement or HSA are properly coded
The Bottom Line
A little proactive planning in December can save you a four- or five-figure tax bill in April.
Here’s what we recommend:
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Action
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Why It Matters
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Review officer salary
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Avoid IRS scrutiny & align with profitability
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Check distributions
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Ensure they’re legal & tax-smart
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Run financials
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Base your moves on data, not vibes
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Maximize contributions
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Deduct thousands in 2025
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Schedule a CPA review
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Make confident, compliant decisions
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Need Help With Your S Corp Tax Moves?
We specialize in helping law firm owners understand how their entity structure, cash flow, and compensation all impact taxes.
Don’t guess your way through year-end strategy.
Start 2026 right—and keep more of what you earn.
