Tax season is here! Now is the time to focus on small business tax strategies that can help you keep more of your hard-earned money. If you’re a small business owner, you know taxes aren’t just a once-a-year thing – they’re something to keep an eye on all year long. But as the filing deadline approaches, it’s the perfect time to make sure you’re not paying more than you have to.
The last thing you want is to leave money on the table. Luckily, there are simple ways to lower your tax bill and make the most of every deduction. Here are four smart tax-saving strategies to help your business this upcoming April – and beyond.
Just be sure to also check with a tax pro to make sure these tips fit your situation and support tax planning for small businesses!
Make tax season stress-free. From deductions to deadlines, our guide on Mastering Taxes for Small Businesses covers everything you need to know.
1. Boost Your Tax Savings with Retirement Contributions
If your business offers a 401(k) or similar retirement plan with an employer match, take advantage of it! Any contributions your business makes to employees’ accounts – including your own – are tax-deductible and a great way to incorporate tax strategies into your financial planning.
On top of that, putting money into a tax-advantaged retirement plan, like a 401(k), can lower your taxable income. Since contributions come from pre-tax dollars, this can shrink your overall tax bill – and might even move you into a lower tax bracket.
For 2023, you can contribute up to $22,500 to your 401(k). That limit increases to $23,000 in 2024. If you’re 50 or older, you can add an extra $7,500 each year in catch-up contributions.
2. Make the Most of Deductions
Your business’s tax bill comes down to two main factors: how much you earn in a year and the tax rate applied to that income. The higher your income, the higher your tax rate.
Taking advantage of deductions is a key part of tax planning for small businesses, as it helps lower your taxable income – both business and personal. (This is true whether for most types of business structure, whether you’re a sole proprietor or a salaried employee of your company.) A lower income can also place you in a lower tax rate bracket.
Here’s what you need to know about most common small business tax deductions:
1. Home Office
If you run your business from home, you might be able to write off some of your home expenses – but only if you meet the IRS’s two key rules.
First, your home office must be your main place of business. If you have an office elsewhere and just use your spare bedroom for occasional paperwork, you won’t qualify.
Second, the space has to be used only for work. If your home office doubles as a nursery or guest room, the IRS won’t count it.
If you do qualify, you can deduct a portion of expenses like your mortgage, property taxes, and home insurance – based on the percentage of your home that’s used for business.
2. Vehicles Used for Work
If you use a car, truck, or other vehicle for work, you can deduct the costs, and there’s more than one way to do it.
The easiest method is using the standard mileage rate, which is $0.67 per mile in 2024. Or, you can track and deduct your actual expenses, including gas, oil changes, repairs, and tires.
If you drive long distances (over 100 miles), deal with heavy traffic, or have had pricey repairs, tracking actual expenses might save you more money. Keeping detailed records can help you compare and choose the best deduction method.
Small businesses can also get a tax break when buying a business vehicle. If the vehicle weighs over 6,000 pounds, you may be able to deduct part of the purchase price – so it’s worth checking the details with a tax pro.
3. Health Savings Plans as an Employee Benefit
A Health Savings Account (HSA) is a great way to set aside money for medical expenses while also getting tax benefits. If your business offers a high-deductible health plan (a deductible of at least $1,600 for individuals or $3,200 for families in 2024), you and your employees may qualify for an HSA.
HSAs offer tax savings for both you and your business. Just like 401(k) contributions, HSA contributions are made pretax, which means employees pay less in taxable income – and your business pays less in payroll taxes.
As a business owner, you can also contribute to your employees’ HSAs, similar to how companies match 401(k) contributions. Any money your business adds is tax-deductible.
For 2024, individuals can contribute up to $4,150, while those with family coverage can contribute up to $8,300 – all with the benefit of lowering taxable income.
4. Family Employment
Ever wish that your employees’ salaries were tax-deductible? Well, they can be – if you hire your kids to work in the business. Their salaries are deductible from your business income. The IRS specifies that the work must be age-appropriate for the child and that the pay must be within a reasonable and fair amount for the job generally.
Also, your kids don’t have to pay tax themselves as long as their salary doesn’t exceed the amount of the standard deduction ($14,600 for 2024).
Hiring your spouse can also come with tax perks. They can enroll in your company’s 401(k) and HSA plans, which helps lower your household’s taxable income and reduces the amount you owe on your joint tax return.
3. Push Income to Next Year to Lower Your Tax Bill
If you’ve had a big year and want to reduce your taxable income, one strategy is to defer income – essentially pushing some earnings into the next tax year. This can be especially useful if you expect to be in a lower tax bracket next year.
There are two common ways to do this: cash-basis accounting and accrual-basis accounting:
- Cash-basis accounting: Since income is taxed when it’s received (not when invoiced), you can delay sending invoices until early in the new year. For example, if you want to push income into 2025, you’d wait until January to send invoices for work completed late in 2024.
- Accrual-basis accounting: If you invoice only after delivering a product or service, you can schedule deliveries for early next year—shifting that income into the next tax period.
This approach won’t work for everyone, so it’s a good idea to check with a tax pro before making any changes to your income timing.
4. Don’t DIY Your Bookkeeping and Taxes
Handling your own bookkeeping and taxes might seem doable, especially when you’re just starting out. But it can quickly turn into a time-consuming, stressful, and costly mistake. Here’s why working with a pro is a smart move:
- Taxes are complicated. Rules change constantly, and missing key deductions or misfiling can cost you.
- You have multiple tax obligations. Federal, state, and even local taxes all have different requirements – especially if you have employees in multiple states.
- Mistakes can be expensive. Filing late, miscalculating payments, or withholding the wrong amounts can lead to hefty fines and interest charges that hurt your cash flow.
- It eats up your time. Time spent on taxes is time away from growing your business. Sales, strategy, and operations drive revenue – bookkeeping and tax prep don’t.
- You might be missing valuable insights. A good bookkeeping and tax provider doesn’t just keep your records clean. They can help you spot trends, improve cash flow, and compare your business to industry benchmarks.
Bringing in a professional frees you up to focus on what you do best: running and growing your business.
Take Charge of Your Taxes Year-Round
Smart tax planning can make a big difference in how much you owe – and how much you keep. From maximizing retirement contributions and deducting home office expenses to leveraging business vehicle write-offs and hiring family members, these tax strategies for small business owners can help lower your tax bill.
The key is staying proactive. By using these tax planning strategies year-round and working with a trusted tax professional, you can keep your business finances in great shape and avoid any tax season surprises.
Ready to take control of your taxes? Start planning today and make the most of every deduction available to you!
Want to feel more confident about tax season? Check out Guidant’s Complete Guide to Taxes for Small Businesses for a clear breakdown of tax basics, business structures, accounting methods, and how to file and pay your taxes.
Simplify Your Taxes with Guidant Bookkeeping and Tax Services
Managing bookkeeping and taxes on your own can be overwhelming, but you don’t have to do it alone. Guidant’s Bookkeeping and Tax Service is built for small businesses, offering expert support to save you time, money, and hassle.
Here’s what sets us apart:
- Flexible pricing options to fit your business needs.
- A team of tax and accounting experts with experience across all major industries and states.
- Seamless integration with payroll, point-of-sale systems, bank accounts, and credit cards.
- One place for everything – if you’re a Guidant Payroll or 401(k) client, your year-end data is already organized.
And if you’re not satisfied, we offer a 90-day money-back guarantee. That means you’ve got nothing to lose by trying it!
Let Guidant handle the numbers, so you can focus on your business. Explore our Bookkeeping and Tax Services to simplify your finances and stay tax-ready year-round.
