10 Small Business Tax Tips & Strategies

Whether you’re just starting out or have been operating for years, understanding how to minimize your tax bill can make a significant impact on your bottom line. 

In this blog, we’ll explore practical tax tips that can help you navigate the complexities of small business taxes. From taking advantage of deductions to making tax-smart business decisions, these strategies can help you keep more of your hard-earned money.  Get started and put your business on the path to success.

Separate business and personal expenses

When you start a new business, it’s easy to get overwhelmed by the financial side of things. That is why one of the most essential tax tips for small business owners is separating business and personal expenses.

By separating your business and personal expenses, you simplify accounting and support accurate tax reporting by clearly identifying which funds are personal and which funds belong to the business.

Take advantage of cash accounting

Many small businesses use cash accounting. This simply means you don’t pay tax on income until you receive the revenue, rather than when the service is performed. In addition, you can’t deduct an expense until money is paid, rather than when an expense is incurred. 

If you use the cash accounting method, you can prepay expenses before year end to increase deductions.  This is helpful if you have high taxable income in the current year and want to reduce your taxable income. In order to be able to take the deduction, the expense you prepay must provide benefits for a period of 12 months or less and does not extend past the close of the next tax year. 

Likewise, if you plan to have high taxable income next year, you can defer expenses to maximize deductions for the following year when it may be more beneficial to you.

Track and write off eligible business expenses

In order to get the most out of your taxes and save money, it’s essential to track and write off eligible business expenses when running a business.

A tax write-off, otherwise known as a tax deduction, is a business expense you can deduct from your business’s taxable income. The expense has to fit the IRS criteria of a tax deduction, but essentially, you would take the eligible deductible amount of the expense and subtract it from your taxable income.

A few common business tax deductions include:

• Office expense
• Rent and utilities 
• Employee expenses
• Professional services
• Insurance
• Interest
• Depreciation
• Advertising and promotions
• Business meals
• Moving or travel expenses
• Education and training
• Home office expenses

It’s essential to keep accurate records, stay on top of your monthly bookkeeping, and consult with your tax advisor or CPA in order to ensure you’re making the most out of your deductions.

Make a donation

Just like individuals can make tax-deductible charitable contributions, certain types of businesses can also do the same. You have until December 31 to make those contributions, so if you’ve got old office equipment or other items going unused, find a place to donate them.

If you’re simply looking to make a cash donation, you can find a number of worthy charities. As long as it’s a qualified charitable organization and you maintain proof of the contribution, the donation can be deducted.

The reporting of the donation will depend on what type of business structure you have. 

• S corporations, as well as partnerships, do not deduct charitable contributions directly on the business tax return. Rather, the donation is passed through to shareholders on Form K-1 to deduct on the shareholder’s personal return. 
• C corporations are allowed to deduct donations on their Form 1120, although certain limitations may apply. 
• Sole proprietors cannot deduct charitable donations on their Schedule C and instead, they claim the donation as an itemized deduction on Schedule A, if they are able to itemize.

Retirement plan contributions

The easiest thing you can do is to make a retirement plan contribution. As long as you haven’t already maxed out your contributions, this is a no-brainer. Don’t have a retirement account? Then, set one up and make a contribution.

Bonus tip: If you’re self-employed, you can contribute to a SEP IRA and save on your taxes. A SEP IRA is a type of traditional IRA for self-employed individuals or small business owners.

The advantage of a SEP IRA over a traditional or Roth IRA is a larger contribution limit. Additionally, contributions are tax-deductible.

The reporting of retirement plan contributions will defer depending on your type of business:

• If you are a sole proprietor and have employees under a SEP IRA plan, contributions for those employees are considered a valid business expense and deducted on your Schedule C. For contributions for the sole proprietor made by the business, the contribution will be deducted as an adjustment to income on Form 1040, which will reduce the Adjusted Gross Income (AGI) and lower overall tax liability. 
• For S corporations and C corporations, all SEP IRA contributions are deducted on the business tax returns.
• If you are a partner in a partnership, your SEP IRA contribution will be reported to you on your Schedule K-1 and can be deducted on your personal income tax return, similar to those who file a Schedule C.

Save on health insurance premiums and your taxes

Although you may not have the luxury of having employer-provided health insurance, you can purchase a plan in the Health Insurance Marketplace or your state Marketplace during open enrollment. If you do, you may find that you’re eligible for an advanced premium tax credit to help you pay for health insurance. 

If you are self-employed, you may be able to deduct your personal health insurance premiums on your Form 1040 as an adjustment to income, which lowers your AGI, as well as your overall tax liability. This deduction is limited by the net income of your business that is reported on Schedule C.

However, if you have employees, the cost of their health insurance premiums is a valid business deduction and should be reported on the business tax return.

Deduct eligible property expenses

Thanks to section 179 of the Internal Revenue Code (IRC), small businesses are able to deduct the full cost of depreciable assets such as vehicles, equipment, and software, in the year the business begins using them.

In the 2024 tax year, section 179 property can include up to $1.22 million of eligible business property. This can help small business owners lower their company’s taxable income in the year the purchased items are put into service rather than capitalizing an asset and having it depreciate over time. 

The limitation of Section 179 is the amount of taxable income produced by your business. Section 179 can’t create a net operating loss. 

Benefit from product innovation

One of our top small business owner tax tips is learning how to benefit from production innovation and make the most of tax breaks. 

The R&D, federal research and development tax credit is a dollar-for-dollar reduction of a qualifying company’s tax liability for specific domestic expenses. 

R&D tax credits are available to all organizations and businesses that engage in developing new or improved:

• Products
• Software
• Techniques
• Processes
• Formulas
• Inventions

In order to benefit from the product innovation credit, you must meet the four part test as specified by the IRS.

Review your business’s tax classification

When it comes to starting a business, the forethought you put into choosing your business structure will help determine your personal liability and what tax documents you’ll need to file.

The IRS categorizes businesses into the following classifications: 

• Sole proprietorships
• Partnerships
• C Corporations
• S Corporations
• Limited Liability Company (LLC) – which can be classified as a corporation, partnership, or disregarded entity

If you change your company’s tax classification, it will likely result in changes for reporting requirements, which may be more complex compared to another type of business classification. Ultimately, you should carefully evaluate and choose the business structure that supports your long-term goals.

Get organized

While this might not put money right into your pocket, it can save a lot of time. And time is money. Use the end of the year to get your business finances organized. Sure, you may not need to file for a few more months, but there are tools to help you easily organize your business income and expenses, like QuickBooks Self-Employed.

Don’t worry about knowing tax laws for self-employed individuals. At tax time, TurboTax will ask you simple questions about your business income and expenses and give you the business tax deductions you deserve based on your entries. You can also use QuickBooks Self-Employed, which will help you separate your business and personal expenses and automatically export the information to your tax return in TurboTax.