Tax Strategies for Business Owners

Smart tax savings rarely come from a single trick. They come from a handful of habits and decisions that add up over the year. Here are seven approaches that business owners commonly use, along with reminders about the rules that apply to each.

1. Keep Better Records

Deductions you cannot prove are deductions you may lose. Record income and expenses as they happen, keep receipts and separate business from personal accounts. Missed deductions are among the most common and avoidable ways owners overpay.

2. Contribute to a Retirement Plan

Business retirement plans let owners set aside pre-tax money for the future while reducing current taxable income. Options include SEP IRAs, SIMPLE IRAs and 401(k) plans, each with its own contribution limits and rules set by the IRS. See our related article on retirement plan options.

3. Time Income and Expenses Thoughtfully

Depending on your accounting method, you may be able to shift some income or deductions between years, such as by delaying invoices or paying certain expenses before year-end. This helps most when you expect your tax bracket to differ between years. Do not sacrifice business sense for a tax effect.

4. Use Equipment Write-Offs Carefully

The tax code provides ways to deduct the cost of business equipment faster than normal depreciation, subject to rules and limits that change from year to year. Buy what the business needs, since spending a dollar to save a fraction of a dollar in tax is not a bargain.

5. Pay Family Members for Real Work

Hiring a family member who does genuine work at reasonable pay can shift income to a lower bracket and, in some cases, avoid certain payroll taxes. The work must be real, the pay reasonable and the records complete.

6. Review Your Business Structure

The right entity can affect self-employment tax, liability and deductions. An S corporation, for example, may reduce self-employment tax for some owners but adds payroll and compliance requirements. Revisit the question as your income changes. See our formation services.

7. Claim the Credits and Deductions You Qualify For

Depending on your business, you may qualify for credits related to hiring, research, energy improvements or health coverage for employees, as well as the deduction for qualified business income available to many owners of pass-through businesses. Eligibility rules are detailed and change often, so verify current rules at irs.gov or with us.

Plan Year-Round

Tax decisions made in December or April are limited. The best results come from meeting with your CPA during the year, projecting your tax and making adjustments while there is still time. Our tax planning services are built for this.

To find out which strategies fit your business, contact our firm.