Savvy ways small business owners reduce their taxes

Dustin Johnson
By Dustin Johnson
backgroundshape

Running a small business can be many things: rewarding, stressful, lucrative. But, as the old saying goes, one thing you can always be certain of is that you’ll need to stay on top of taxes. But unlike paying taxes as an employee, owning a small business offers you different tools to minimize your tax burden. As with anything tax-related, you’ll want to check in with a qualified professional to learn how tax law impacts your specific industry and location. But here are a few ways to consider when you want to minimize your tax obligations.

First, consider the best business structure for you

There are several ways you can structure your business, and each one has different tax implications. The decision to create your business as a sole proprietorship, limited liability company, S corporation, or C corporation is one in which you should consider many factors. Some of these include whether or not you plan to have employees, what your assets are, and what kinds of goods or services you plan to sell. Be sure to talk to your tax advisor to set up the right structure for you and your business. This is the first step in minimizing your taxes.

| Planning not just for profit but for cash flow is crucial.

Use the Qualified Business Income Tax Deduction

This deduction aims to reduce taxes for businesses structured as pass-through entities, such as S-corporations and partnerships. It was created by the Tax Cuts and Jobs Act, a law that went into effect in 2018. With this deduction, you may be able to deduct 20% of certain qualifying income, depending on your business income. While this deduction can greatly reduce how much you owe in taxes, it does have certain limitations and restrictions, so talk to your account to make sure this works for your business.

Max out your retirement plan

If you’ve saved money as an employee in a 401K, you’ve likely seen the power of compounding interest and being able to save for retirement with pre-tax dollars. Owning a small business gives you an opportunity to potentially increase how much you save. Ask your tax preparer if a Solo 401K or SEP IRA is a good vehicle for you. When you create a retirement plan as a small business owner, you may be able to save both as an employee of the business and as the business making contributions into your account. While this is a great way to prepare for retirement, it may have the secondary benefit of reducing your taxable income and, therefore, how much you pay in small business taxes.

Take tax credits 

Keep in communication with your tax preparer to learn about the tax benefits available to small businesses. These can change as tax law evolves, so stay on top of which ones you qualify for. You may be eligible for tax credits for things like investing in renewable energy for your facilities, providing health care for employees, work opportunity credits, and much more. Ask your accountant which ones you may potentially qualify for. You can also plan for capital expenditures based on which ones qualify for tax credits, thus minimizing your costs.

Get really good at tracking expenses

One of the highest costs to your small business could be disorganization. You can't claim your deductible expenses on your taxes if you don’t track them. Get organized and keep track of everything you spend for your business. Even small expenses add up. Get one business credit card to track expense in one account, if possible. You can also use receipt-scanning apps to make it easier to keep track without dealing with a lot of paper.

Taxes are inevitable in life and business, but with some planning and good professional advice, you can keep your tax bill from becoming too unwieldy. ComplYant allows you to manage your small-business taxes in one dashboard. Keep on top of tax deadlines with less stress and confusion. 

Sign up for ComplYant today

Dustin Johnson
By Dustin Johnson
Dustin Johnson is a Senior Tax Research Specialist at ComplYant. Prior to joining ComplYant, he spent over eleven years performing tax research at the world’s largest tax preparation company. Dustin holds a Bachelor of Business Administration and a Juris Doctor. Outside of work, Dustin enjoys biking and spending time with his family.

Related posts

A wooden sign that reads "Welcome, we are open," hangs in a window
Strategy

Taking over: what happens to your taxes when you're suddenly a business owner?

When buying or inheriting a business, there are guidelines to follow, particularly regarding the tax implications of a purchase of that magnitude. Before going forward with the purchase, be sure you understand the business's financial history and find out about any tax issues before signing the deal.
African-American entrepreneur sits at her laptop jotting down ideas in a notebook
Strategy

Low start-up cost small business ideas

Starting a small business can require a hefty investment… but it doesn’t have to be. Start a small business without breaking the bank.
Form reads "Bookkeeping Service: Do you need it?" with checkboxes for "yes" and "no."
Strategy

Follow the money: 3 options for small business accounting

Want to check the vital signs of your business? Start with good accounting practices. Understanding the financial status of your business is one of the best ways to get a sense of the health of your business.