7 Tax Saving Tips For Small Business Owners

Save money on taxes with these 7 tips for small business owners, including deductions, retirement accounts, and hiring family members. Maximize your savings by consulting with a tax professional and considering a change in business structure. Invest the extra funds back into your business for growth and success.


7 Tax Saving Tips For Small Business Owners 

As a small business owner, you understand how much effort it takes to keep your business running. From recruiting employees, marketing, and communications to accounting for daily transactions and managing cash flow - there are many aspects of operating a business that require time and attention. One aspect that is often overlooked by busy entrepreneurs is the ability to save money on taxes.

While financial regulations can be overwhelming and difficult to navigate, understanding key tax-saving tips can greatly reduce the amount of money paid out in taxes each year. In this article, we will cover some easy-to-follow tax-saving tips specifically designed for small business owners - helping you unlock extra funds that could be put towards growing or diversifying your business.

7 Tax Saving Tips For Small Business Owners 

As a small business owner, saving on taxes is always a priority. Here are some tips that can help you save on your taxes:

  • Take Advantage of Small Business Tax Deductions: 

You can take advantage of a range of IRS tax-saving deductions, such as equipment purchases and vehicle use deductions. Common deductions include costs associated with running the business such as office supplies and equipment, advertising expenses, travel expenses, employee wages, and more.

Additionally, you may be able to claim deductions for certain expenses that are not directly related to the business but can still be used to reduce your tax burden.

  • Utilize Retirement Accounts:

It is never too early to start planning for retirement. Tax savings can help save money that can be allocated toward future retirement goals. Two types of accounts that can help aid in tax savings are the SEP IRA and SIMPLE IRA. A SEP or Simplified Employee Pension plan is an employer-funded retirement plan designed for small business owners, the self-employed, and employees who cannot participate in other pension plans due to certain legal requirements.

The SIMPLE IRA is designed for any small business owner or self-employed individual with 100 or fewer employees who want a straightforward and inexpensive way to save for their retirement. These plans can offer significant tax benefits that would not otherwise be available to taxpayers and allow them to grow their funds faster as they prepare for their retirement years.

  • Claim the Self-Employment Tax Deduction:

Self-Employment Tax, or SECA tax, is made up of the Social Security and Medicare contributions that self-employed individuals must pay. This deduction applies to income earned as an independent contractor and can reduce your total taxes by up to 15.3% (Social Security 12.4% and Medicare 2.9%). It is especially important for business owners and those with large incomes, as the tax advantages can really cumulate into significant amounts of money saved.

To qualify for this deduction, simply be sure that your annual earnings from self-employment exceed $400.  However, small business owners can deduct half of this amount from their income taxes.

  • Benefit from Depreciation Deductions:

Depreciation helps small business owners reduce the value of assets over time. This deduction can be used for tangible assets like furniture and equipment, or intangible assets such as copyrights and patents. Depreciation deductions can help offset the cost of owning and maintaining a rental property, reducing taxes owed and potentially freeing up funds for other investments or needs.

For example, if you own a two-unit rental property, you can deduct any appliances, HVAC systems, flooring, and other components of your property for up to 27½ years. This is particularly beneficial to those who are just starting a business in the real estate market by enabling them to save money on their taxes while still growing their investment portfolio.

  • Hire Family Members:

Hiring family members who are in a lower tax bracket can help reduce your overall tax burden. This is because wages paid to family members who work for you are considered taxable income, and therefore you must pay Social Security and Medicare taxes on their earnings. However, the wages paid to family members are generally subject to much lower tax rates, which can benefit the business owner significantly when it comes time to file taxes.

It is important to note that while this strategy can help reduce taxes, there are certain conditions and rules that must be followed in order for it to be a valid tax reduction tool. For example, family members must actually perform some type of work or service within the business in order for their wages to be considered taxable income.

  • Consider Changing your Business Structure:

Consider changing your business structure as different business structures offer advantages when it comes to taxes, including different levels of taxation and varying access to deductions. Many business owners are unaware of the tax advantages associated with creating a limited liability company (LLC). LLCs are typically taxed as pass-through entities, meaning that taxes on profits “pass-through” to the owner and are not paid at the corporate level. This can result in significant savings when it comes to filing taxes, as the owner is only responsible for paying taxes on his or her individual income.

An LLC also provides protection to its owners from personal liability, meaning that if litigation arises, only the assets of the business are at risk - not those of the owner. However LLCs are subject to certain state regulations and filing requirements, so it is wise to consult a registered agent in the state you want to form your LLC. For instance, if you are starting your LLC business in Texas, we recommend you consult a registered agent for LLC in Texas, over any other state.

  • Consult a Professional Tax Accountant:

Hiring a professional tax accountant can be an invaluable resource to save you money on taxes. An experienced tax accountant can provide advice on how to best maximize your potential deductions and strategically plan ahead in order to reduce your taxes owed. Tax accountants can also help with in-depth retirement planning, educational savings strategies, charitable giving options, capital gains taxes, estate planning issues, and more.

A qualified accountant can help you identify possible deductions to maximize your refund and may give you tips on how to save money in taxes in the future. They are experienced with tax laws and regulations and will take the time to make sure that everything is filed accurately and on time.

Final Thoughts

Taxes can be a major expense for small business owners, but there are many ways to save. Employing the above strategies can help reduce taxes owed and make sure you maximize your refund each year.

It is important to keep in mind that these tips may not apply to everyone, so it is best to consult with a qualified tax professional in order to determine the best plan of action for your business.  With proper planning, you can potentially save thousands of dollars each year on taxes, leaving more room in your budget for investments and growth.

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