Smart Tax Strategies for Small Business Owners

From entity selection to maximizing deductions, master the tax strategies that help small businesses thrive and keep more revenue.

Running a small business comes with significant tax responsibilities and equally significant tax-saving opportunities. The way your business is structured, whether as a sole proprietorship, partnership, LLC, or S-Corp, directly affects how you file and how much you pay.

Small business owners can deduct ordinary and necessary business expenses, take advantage of the Qualified Business Income deduction for pass-through entities, and leverage retirement plan contributions to reduce taxable income substantially. Strategic timing of income and expenses can also shift your tax burden between years.

Working with a qualified tax professional or using comprehensive tax software is essential for small business owners. The complexity of business taxation means that missed deductions and compliance errors are common and costly. Investing in proper tax preparation is one of the highest-return investments a small business can make.

Key Deductions & Credits

Qualified Business Income (QBI) Deduction

$2,000 - $30,000

Pass-through business owners may deduct up to 20% of qualified business income under Section 199A, subject to income thresholds and business type limitations.

Business Vehicle Expenses

$2,000 - $10,000

Deduct the business-use portion of vehicle costs using standard mileage (70 cents/mile for 2025) or actual expense method including gas, insurance, repairs, and depreciation.

Retirement Plan Contributions

$5,000 - $25,000

Contribute up to $69,000 to a SEP-IRA or Solo 401(k) for 2025, reducing taxable income while building retirement savings.

Employee Wages & Benefits

Varies by payroll size

Salaries, health insurance, and retirement contributions for employees are fully deductible business expenses.

Section 179 & Bonus Depreciation

$1,000 - $50,000+

Immediately expense qualifying equipment purchases up to $1,250,000 under Section 179 for 2025 instead of depreciating over multiple years.

Forms You May Need

Schedule C (Form 1040) — Profit or Loss from Business (Sole Props)

Form 1120-S — U.S. Income Tax Return for an S Corporation

Form 1065 — U.S. Return of Partnership Income

Schedule K-1 — Partner/Shareholder Income Distribution

Form 941 — Employer's Quarterly Federal Tax Return

Form 1099-NEC — Nonemployee Compensation (for contractors)

Filing Tips

Choose the right business entity structure. S-Corps can save on self-employment taxes for owners earning over $50,000 in profit.
Maximize retirement contributions before year-end. SEP-IRAs allow contributions up to the filing deadline including extensions.
Time large equipment purchases strategically to take advantage of Section 179 expensing in the year you need the deduction most.
Keep meticulous records of all business meals, which are 50% deductible, and document the business purpose for each.
Consider hiring your children if they are of working age. You can deduct their wages and they may owe little or no tax on the income.
Review your estimated tax payments quarterly and adjust mid-year to avoid penalties or overpayment.

Common Mistakes to Avoid

Not separating personal and business finances, which complicates bookkeeping and weakens audit protection.
Overlooking the QBI deduction, which can reduce taxable income by up to 20% for qualifying pass-through businesses.
Misclassifying employees as independent contractors, which triggers penalties, back taxes, and interest from the IRS.
Failing to issue 1099-NEC forms to contractors paid $600 or more, resulting in potential penalties of $60-$310 per form.
Not taking advantage of retirement plan contributions, which reduce current taxes while building long-term wealth.

Recommended Software

TurboTax Business handles all entity types including S-Corps, partnerships, and multi-member LLCs with step-by-step guidance for complex business deductions and K-1 generation.

Review TurboTax

FAQ

What is the best business structure for tax savings?

It depends on your income level and situation. Sole proprietorships are simplest but you pay full self-employment tax. An S-Corp can save 10-15% in SE taxes on profits above a reasonable salary. LLCs offer flexibility to be taxed as any entity type. Consult a CPA when net income exceeds $50,000.

Can I deduct startup costs for a new business?

Yes. You can deduct up to $5,000 in startup costs and $5,000 in organizational costs in your first year. Amounts exceeding these thresholds must be amortized over 180 months. Startup costs include market research, advertising before opening, and travel to scout locations.

How does the QBI deduction work?

The Section 199A deduction allows owners of pass-through entities to deduct up to 20% of qualified business income. For 2025, the full deduction phases out above $191,950 for single filers and $383,900 for joint filers. Certain service businesses like law, health, and consulting face additional limitations.

When is my business tax return due?

S-Corps and partnerships must file by March 15. Sole proprietors file with their personal return by April 15. C-Corps file by April 15. All business types can request a 6-month extension, but any taxes owed are still due by the original deadline.