Tax-Savings Tips Every Small Business Owner Should Know

Running a business is hard work—your tax strategy shouldn’t make it harder. The right moves, made at the right time, can lower your tax bill and improve cash flow without adding risk. Here’s a concise, value‑packed overview of the strategies I recommend most often to owners and independent professionals.

1) Choose (or revisit) the right entity structure

Your legal entity heavily influences how you’re taxed. For many profitable businesses, electing S corporation treatment can reduce self‑employment tax by splitting compensation between a reasonable salary and pass‑through distributions. The salary is subject to payroll taxes; the distributions generally aren’t. The “reasonable compensation” requirement is real—stay within market ranges for your role and industry to avoid issues. (See IRS guidance on S‑corp compensation and one‑participant plans for context.)

When to review: If your net profit consistently tops the low–mid five figures, it’s time to model scenarios (S‑corp vs. sole prop/LLC) and include payroll, state taxes, and admin costs in the analysis.

2) Maximize deductions you’re already earning

Think of deductions as incentives to invest in your business—not loopholes.

• Vehicle use: Track business mileage or actual costs. For 2024, the standard mileage rate is 67.0¢/mile; for 2025, it’s 70.0¢/mile. A clean mileage log is non‑negotiable.

• Travel & meals: Business travel is generally deductible; most meals are 50% deductible when properly documented. (See IRS Pub. 463.)

• Home office: If you regularly and exclusively use part of your home for business, consider the simplified method or the actual‑expense method (often larger but requires detailed records). (Pub. 587 concepts are covered in Pub. 463 cross‑refs.)

Pro tip: Go digital—scan receipts, keep category folders, and use a mileage app. Clean records make year‑end planning more effective and audits less stressful.

3) Use retirement plans to lower taxes and build wealth

Two favorites for owner‑operators:

• Solo 401(k): Allows contributions as employee (deferral) and employer (profit‑sharing). The 2024 combined limit is $69,000 (plus $7,500 catch‑up if 50+). For 2025, it rises to $70,000 (catch‑up remains $7,500; a special $11,250 catch‑up applies at ages 60–63 if your plan allows).

• SEP‑IRA: Generally up to 25% of compensation, capped at $69,000 for 2024 ($70,000 for 2025). Simple to administer; best when you don’t need employee deferrals or Roth options.

Which one? If you want higher contributions at lower income levels, employee Roth deferrals, or plan loans, Solo 401(k) often wins. If you want simplicity and only employer contributions, a SEP‑IRA is solid.

4) Accelerate write‑offs on equipment and improvements

If you’re investing in gear, tech, vehicles, or qualifying improvements, timing matters.

• Section 179 expensing: For tax years beginning 2024, the limit is $1,220,000 (phasing out after $3,050,000 of qualifying purchases). For 2025, it increases to $1,250,000 (phase‑out starts at $3,130,000). SUVs have special caps.

• Bonus depreciation: Under prior law, bonus was 60% in 2024 and 40% for property placed in service Jan 1–19, 2025 (with nuances for long‑production assets). New legislation (“Working Families/OBBB”) restored 100% bonus depreciation for qualifying property placed in service after Jan 19, 2025. Plan purchases and “placed‑in‑service” dates to fit your cash‑flow and tax goals.
  

Pro tip: Coordinate Section 179 and bonus depreciation—often you’ll mix both to get to the desired deduction while managing state conformity.

5) Don’t leave tax credits on the table

Credits offset tax dollar‑for‑dollar. They’re extremely valuable.

• R&D Credit: You may qualify even if you’re improving internal processes or software (not just “lab research”). Start‑ups may be able to apply credits against payroll tax. (IRS resources and practitioner guides cover eligibility.)

• Work Opportunity Tax Credit (WOTC): Worth up to $9,600 per eligible hire (certain veterans), with strict pre‑screening and 28‑day submission rules. Extended through Dec. 31, 2025. Build this into your hiring workflow.

6) Stay penalty‑free with quarterly estimated taxes

The IRS is pay‑as‑you‑go. Typical due dates: Apr 15, Jun 15, Sep 15, Jan 15. To avoid underpayment penalties, hit a safe harbor: pay 90% of current‑year tax or 100% of last year’s tax (110% if prior‑year AGI > $150,000). If your income is seasonal, consider the annualized income method to match payments to real earnings.

Workflow tip: Automate EFTPS payments and calendar reminders. Re‑forecast in the fall so Q3/Q4 reflect actuals.

7) Smart family‑employment strategies (do it right)

Paying a spouse for bona fide work enables deductible wages and access to benefits (e.g., retirement contributions, certain health reimbursements). Hiring children for legitimate, age‑appropriate work shifts income to their lower bracket. As a guidepost, a dependent child can generally earn up to the standard deduction without federal income tax ($14,600 for 2024; $15,000 for 2025). Payroll and documentation rules apply; in certain entities, wages to your child under 18 may be exempt from FICA.

Non‑negotiables: Time sheets, job descriptions, market‑rate pay, and proper payroll/tax filings. Avoid “under the table” payments—they erase the benefits and add risk.

8) Year‑end plays with outsized impact

The weeks before December 31 are prime time to lock in savings:

• Pull forward needed equipment or software purchases if you want deductions this year (placed‑in‑service by year‑end).

• Defer/accelerate income when feasible (e.g., timing invoices/collections).

• Top up retirement plan contributions based on cash flow and limits.

• Confirm estimated payments and state obligations to sidestep surprises.

What to do next

The tactics above are straightforward—but the best combination depends on your entity, income pattern, state rules, and goals. If you’d like a brief, focused consult to map the highest‑impact moves for your situation: schedule a consultation.