Mid-Year Tax Planning Strategies to Reduce Your 2026 Tax Bill
Tax planning isn’t a December activity—it’s a year-round discipline. By mid-year, you have six months of financial data revealing your approximate tax position, yet still have time to implement strategies that reduce your 2026 tax bill. At BBS Accounting in Toronto, we conduct mid-year tax planning reviews for Ontario clients, identifying opportunities while there’s still time to act. This guide presents strategic actions you can take now.
Why Mid-Year Planning Matters
Waiting until December to think about taxes leaves limited options. Many strategies require action throughout the year, not at year-end. By mid-year, you can project your approximate 2026 income and tax liability, identify the tax bracket you’ll land in, and implement strategies over six months rather than rushing them in December.
Mid-year planning also allows course corrections. If Q1-Q2 performance differs significantly from expectations, you can adjust strategy accordingly.
Project Your 2026 Tax Liability
Start by estimating your year-end position.
For Business Owners:
Review year-to-date net income, project remaining six months based on historical seasonality and known factors, estimate total 2026 net income, add other income sources (investment income, rental income, employment income), subtract deductions (RRSP contributions, childcare expenses, etc.), and calculate estimated taxable income.
Use current federal and Ontario tax rates to estimate taxes owing. Don’t forget to account for CPP contributions if self-employed (roughly 11.9% of net self-employment income up to the maximum).
For Employees:
Review year-to-date paystubs showing income and taxes withheld, project remaining income, estimate total taxes withheld for the year, add other income sources and deductions, and calculate whether you’ll owe additional tax or receive a refund.
At BBS Accounting, we prepare mid-year tax projections for clients showing estimated liability and identifying planning opportunities.
Income Deferral Strategies
Reducing 2026 taxable income by deferring it to 2027 can lower your tax bill, especially if you expect lower income next year.
For Business Owners:
Delay December invoicing until January: If you bill clients in December, you record revenue in 2026 (accrual basis) or receive payment in 2026 (cash basis). Delaying invoicing until January shifts income to 2027. This works if you can afford the temporary cash flow delay.
Defer project completion: For large projects near year-end, consider whether completion can be scheduled for January rather than December, deferring revenue recognition.
Accrued revenue: For service businesses, review whether you’re properly accruing revenue for partially completed work. Don’t accrue more than necessary at year-end—this increases 2026 taxable income.
Prepaid customer deposits: Taking deposits from customers in late 2026 for work completing in 2027 doesn’t create taxable income until the work is performed (accrual basis), providing cash flow without immediate tax consequence.
Caution: Don’t defer income unreasonably. The CRA expects businesses to recognize revenue when earned. Systematically delaying invoicing beyond reasonable business practices creates audit risk.
For Employees:
Limited income deferral options exist for employees, though some can defer bonuses to the following year with employer cooperation. Registered retirement savings (RRSP) effectively defers income by reducing taxable income now.
Expense Acceleration Strategies
Conversely, accelerating expenses into 2026 increases deductions, reducing taxable income.
Prepay Deductible Expenses:
Consider prepaying expenses due in early 2027 if deductible in 2026. Examples include insurance premiums due in January paid in December, professional association dues for 2027 paid in late 2026, software subscriptions renewing in January paid in December, and business licenses and permits for 2027 paid in late 2026.
For accrual basis businesses, expenses are deductible when incurred, regardless of payment timing. You can accrue expenses for services received but not yet billed at year-end.
Accelerate Planned Purchases:
If you plan to purchase equipment, computers, furniture, or vehicles, consider making purchases before year-end rather than early 2027. These generate immediate deductions (under $500) or Capital Cost Allowance claims.
Bonus Depreciation and Immediate Expensing: For qualifying businesses, immediate expensing rules allow deducting up to $1.5 million in eligible property purchases annually. If you have planned capital expenditures, timing them for 2026 provides immediate tax benefit.
Business Expenses:
Review discretionary business expenses that could be incurred now or early 2027. Examples include professional development (courses, conferences), marketing expenses (website redesign, branding), office improvements or furniture, technology upgrades, and consulting or advisory services.
If incurring these expenses provides business value and you have cash flow, accelerating them into 2026 reduces your tax bill.
Caution: Only accelerate expenses that make business sense. Spending $10,000 to save $3,000-4,000 in taxes leaves you $6,000-7,000 poorer. Tax savings should be secondary to business value.
RRSP Contribution Strategy
RRSPs are powerful tax-reduction tools, and you have until March 2, 2027 to make 2026 contributions.
Calculate Remaining Contribution Room:
Check your 2025 Notice of Assessment for your 2026 RRSP deduction limit. This includes unused room from prior years plus 18% of your 2025 earned income (up to the maximum of $31,560 for 2026) minus any pension adjustments.
Strategic Contribution Timing:
If you expect higher income in 2026 than 2027, maximizing 2026 contributions makes sense—deductions are worth more at higher tax rates.
If you expect lower income in 2026, consider using only enough contribution room to reduce income to a lower tax bracket, saving remaining room for higher-income years.
Spousal RRSPs:
Contributing to a spousal RRSP provides immediate tax deduction for the contributing spouse while building retirement savings for the lower-income spouse. This facilitates income splitting in retirement when funds are withdrawn.
Example: You’re in the 40% combined tax bracket. Contributing $15,000 to your RRSP saves $6,000 in taxes. This makes RRSPs incredibly tax-efficient savings vehicles.
At BBS Accounting, we model optimal RRSP contributions for clients based on current income, future expectations, and tax bracket optimization.
Capital Purchases and CCA Planning
Strategic timing of capital asset purchases affects your tax bill.
Half-Year Rule:
Canada’s half-year rule generally allows claiming only 50% of the normal CCA rate in the year an asset is purchased. Planning purchases for when they provide maximum benefit is important.
Immediate Expensing:
Eligible Canadian-Controlled Private Corporations can immediately expense up to $1.5 million annually in qualifying property, effectively writing off the full cost in the purchase year rather than over multiple years.
If you have planned equipment purchases and qualify for immediate expensing, making purchases in 2026 provides immediate tax benefit.
Timing of Vehicle Purchases:
Business vehicle purchases generate CCA deductions. For non-zero emission vehicles, you claim CCA over several years. For zero-emission vehicles, you can claim 100% in the first year under special rules.
If you need a business vehicle, purchasing before year-end provides 2026 tax benefit. Delaying until January pushes the benefit to 2027.
Selling Depreciated Assets:
If you have business assets you plan to dispose of, timing the sale affects your taxes. Selling appreciated assets creates recaptured CCA (taxable income), while selling at a loss creates terminal losses (deductible).
Review your asset base with BBS Accounting to determine optimal timing for dispositions.
Income Splitting Opportunities
Income splitting shifts income from higher-tax family members to lower-tax members, reducing total family tax.
Salaries to Family Members:
If family members genuinely work in your business, pay them reasonable salaries for work performed. This is legitimate tax planning—the income shifts from your higher tax rate to their lower rate.
Requirements: work must actually be performed, compensation must be reasonable for the work done, and proper payroll procedures including source deduction remittances must be followed.
Example: You’re in the 40% bracket, your spouse is in the 20% bracket. Paying your spouse $20,000 for legitimate business work saves roughly $4,000 in family taxes ($8,000 reduction in your taxes minus $4,000 increase in spouse’s taxes).
Prescribed Rate Loans:
You can loan money to lower-income family members at CRA’s prescribed rate (currently 2% for loans issued in Q3 2026) for investment purposes. Investment income earned by the family member is taxed at their lower rate.
This strategy has specific rules and documentation requirements. BBS Accounting can structure these properly for clients.
TOSI Rules:
Tax on Split Income rules restrict income splitting through certain mechanisms like family trusts, corporate dividends, and partnerships. However, legitimate compensation for work performed is allowed.
Navigate TOSI rules carefully with professional guidance to avoid penalties while achieving legitimate splitting where available.
Incorporate or Not?
Mid-year is appropriate timing to assess whether incorporation makes sense for your business.
Benefits of Incorporation:
Small business tax rate of 12.2% in Ontario (combined federal and provincial) on first $500,000 of active business income, compared to personal tax rates up to 53.53% at high incomes. Potential for income splitting through dividends to family members (subject to TOSI rules). Deferral of personal tax by leaving profits in corporation. Limited liability protection. Estate planning advantages. Enhanced credibility with some customers and lenders.
Costs of Incorporation:
Incorporation and annual maintenance costs, more complex accounting and tax compliance, loss of certain deductions available to sole proprietors, and potential double taxation when extracting corporate profits.
Break-Even Point:
Generally, incorporation becomes tax-advantageous once business income exceeds $70,000-100,000 annually, though this varies by circumstance.
At BBS Accounting, we model incorporation tax impact for clients, showing precisely when it becomes beneficial.
Salary vs. Dividend Strategy
For incorporated business owners, how you compensate yourself affects taxes significantly.
Salary Advantages:
Creates RRSP contribution room, provides CPP benefits (though employer and employee portions both paid by you), deductible to corporation, and may be optimal if corporate income is already below small business deduction limit.
Dividend Advantages:
No CPP premiums (saving roughly 11.9%), may result in lower overall tax through dividend tax credit and integration, and simpler payroll administration.
Optimal Mix:
Many incorporated business owners benefit from combination: salary up to small business deduction limit or amount needed for RRSP room, and remaining compensation via dividends.
Mid-year is perfect timing to assess your salary/dividend mix and adjust for the second half of 2026.
Tax Installment Review
Self-employed individuals and some corporations must make quarterly tax installments. Mid-year is ideal timing to review whether installment amounts remain appropriate.
If your income is lower than expected, you might reduce remaining installments (carefully, to avoid penalties). If income is higher, increase installments to avoid penalties and year-end surprises.
Charitable Donation Timing
Charitable donations generate tax credits, and mid-year planning optimizes their benefit.
Donation Bunching:
Federal and Ontario tax credits provide approximately 20% benefit on first $200 donated and 45-50% on amounts above $200. Bunching donations to stay above $200 annually maximizes credits.
Consider making two years’ donations in one year rather than spreading them. Example: Donate $1,000 in 2026 and $1,000 in 2027 generates credits on $400 at lower rate. Donating $2,000 in 2026 and $0 in 2027 puts $1,800 at the higher rate—better benefit.
Donating Appreciated Securities:
Instead of donating cash, donate publicly traded securities that have appreciated. You avoid capital gains tax on the appreciation and receive the donation credit. This is highly tax-efficient for high-net-worth individuals.
Carry-Forward:
Unused donation credits can be carried forward five years. If you’re in a lower tax bracket this year, consider delaying the credit claim until a higher-income year.
Capital Gains and Losses
For investors with non-registered accounts, capital gains planning affects taxes.
Harvesting Capital Losses:
If you have investments in loss positions, selling them creates capital losses that offset capital gains realized in 2026 or carried back up to three years or forward indefinitely.
Mid-year assessment of your investment portfolio identifies loss harvesting opportunities before year-end.
Deferring Capital Gains:
Conversely, if you have gains, consider whether sales can be deferred to 2027 if you expect lower income then.
Principal Residence Exemption:
If you sold your principal residence in 2026, ensure you’re claiming the principal residence exemption properly. While the gain is tax-free, you must report the sale to CRA.
Medical Expenses
Medical expenses generate tax credits for amounts exceeding 3% of net income or $2,635, whichever is less.
Strategic Timing:
You can claim medical expenses for any 12-month period ending in the tax year. If you have flexibility in scheduling procedures or paying expenses, timing them to maximize amounts in one claim period increases benefits.
Example: You have $5,000 in medical expenses in late 2025 and expect $5,000 in early 2027. Incurring additional $2,000 in late 2026 creates a 12-month period with $7,000 in expenses, maximizing the credit.
Working with BBS Accounting
At BBS Accounting in Toronto, our mid-year tax planning includes: projection of 2026 tax liability, identification of deferral and acceleration opportunities, RRSP contribution planning, incorporation analysis, salary vs. dividend optimization, capital gains/loss strategies, and implementation support.
Mid-year planning sessions typically identify $3,000-15,000 in tax savings for small business owners—many times our fee.
The Bottom Line
Tax planning is most effective when proactive, not reactive. Mid-year provides optimal timing—enough data to project year-end but enough time to implement strategies.
Don’t wait until December to think about taxes. Review your position now, implement applicable strategies, and approach year-end with confidence that you’ve minimized your legitimate tax liability.
Contact BBS Accounting today to schedule your mid-year tax planning consultation. We’ll review your 2026 position, identify opportunities specific to your situation, and help you implement strategies that keep more money in your pocket. Smart tax planning isn’t about avoiding taxes—it’s about paying only what you legally owe and not a dollar more.