Strategies for Reducing Tax Liability for Small Businesses

Choose the Right Business Structure

Electing S Corporation status can shift part of profits from payroll-taxed wages to distributions, if you pay yourself a reasonable salary first. A local café owner we interviewed cut taxes after formalizing pay policies, reducing surprises and late-night bookkeeping stress.

Choose the Right Business Structure

An LLC offers remarkable flexibility: you may be taxed as a sole proprietorship, partnership, S Corporation, or even a C Corporation. That flexibility helps you adapt as revenue, headcount, and margins change, without rebuilding your legal identity or reprinting every contract.

Maximize Deductions With Meticulous Recordkeeping

Ordinary and necessary expenses you might be missing

From software subscriptions to continuing education, many owners forget perfectly valid expenses. A designer told us she reclaimed overlooked fees after tagging them monthly. Set recurring reminders so routine costs do not vanish into your personal spending stream.

Home office and mixed-use assets handled correctly

A well-documented home office can unlock a web of proportional deductions for internet, utilities, and maintenance. Mixed-use items like phones and vehicles require thoughtful allocation. Photograph your workspace annually and keep mileage logs to support every percentage you claim.

Accountable plan for owner reimbursements

An accountable plan lets your company reimburse business expenses you pay personally without adding taxable wages. One contractor’s tax burden eased once receipts flowed through a simple monthly reimbursement routine. Create a written policy and train your team to follow it consistently.

Section 179 expensing without cash-flow shocks

Section 179 may allow you to expense the full cost of qualifying equipment in the year placed in service. Pair the deduction with realistic payment schedules, so your tax savings align with loan terms. Always verify income limits and state conformity before committing.

Bonus depreciation planning around phase-down schedules

Bonus depreciation can front-load deductions on eligible purchases, though phase-down schedules change the math. Coordinate delivery dates and in-service milestones with vendors to avoid missing deadlines. Calendar these milestones early to keep the deduction from becoming an afterthought.

De minimis safe harbor and capitalization policy

A written capitalization policy and de minimis safe harbor election can let you expense lower-cost items routinely. Adopt the policy before year-end and apply it consistently. This small step reduces gray areas, speeds bookkeeping, and supports deductions if questions arise later.

Optimize Owner Pay and Benefits

For S Corporation owners, a documented, reasonable salary is essential. Benchmarks, job descriptions, and market data strengthen your position. After salary, profit distributions may reduce employment taxes. Review annually as roles change, avoiding last-minute adjustments that attract scrutiny.

Optimize Owner Pay and Benefits

Solo 401(k), SEP IRA, and SIMPLE IRA plans create meaningful deductions while funding your future. A photography studio owner we met used a Solo 401(k) to smooth income volatility and reduce taxable income during strong seasons. Start early to maximize compounding benefits.

Claim Powerful Credits and the QBI Deduction

The QBI deduction may allow eligible pass-through owners to deduct a percentage of qualified income, subject to complex limitations. Coordinate wages, retirement contributions, and entity choices to support eligibility. Run projections midyear so there is still time to adjust operations.

Claim Powerful Credits and the QBI Deduction

Many small firms overlook the R&D credit because they assume it is only for labs. A small software shop secured savings for iterative product enhancements and testing. If you experiment to improve functionality or performance, evaluate eligibility before dismissing the opportunity.

Time Income and Expenses Strategically

Choosing cash or accrual affects when revenue and expenses hit your return. If your margins or customer terms evolve, consider a method change. Work with your advisor to prepare the required forms and map the transition without disrupting operations or reporting.

Time Income and Expenses Strategically

Prepaying certain expenses, completing repairs, or timing invoices can legally shift taxable income. Avoid artificial maneuvers; align timing with genuine business needs. Build a year-end checklist in October so you act with intention rather than scrambling in late December.

Mind State and Local Taxes Without Overpaying

Employees, contractors, inventory, and travel can create nexus in new states. Map business activity by location and keep contemporaneous records. Proper apportionment prevents income from being taxed twice. Review this annually if your team, warehouses, or customer footprint shift.