Business Tax Planning Guide: 7 Strategies That Can Help You Save More

Creating a tax strategy that will help achieve your short-term and long-term business goals is essential. Your tax strategy should aim to reduce your business's annual federal and state tax liability efficiently. Tax planning should save time and resources, but it’s generally not just one activity—it can be a combination of different supporting tactics that will ultimately help you save money.

Whether you operate as a startup, a sole proprietorship, a partnership, a limited liability company (LLC), an S corporation, or a C corporation, you want to reduce the taxes you owe while ensuring you fulfill your compliance and tax obligations. Use this guide to learn about the seven business tax strategies you should consider that will help you save more money, along with helpful answers to some of small business owners' most frequently asked tax planning questions.  

Top 7 Small Business Tax Planning Strategies for Tax Savings

1. Claim your deductions

Use tax deductions to reduce your taxable income. The business taxes you pay will be based on your lowered income amount. Consider taking the following tax deductions to support your small business tax planning strategy. 

• Home Office Deduction. If you’re a homeowner and have a regular and established workplace in your home, the associated costs can be deducted from your taxes.

• Charitable Contributions. Lowering your adjusted gross income (AGI) is a popular strategy for small business tax planning. An easy way to do this is by donating to a charity. Many charities will provide a year-end statement to their regular donors, but keeping track of your giving through itemized deductions is essential.

• Qualified Business Income (QBI) Deduction. The QBI deduction allows a small business owners who operate as a pass-through entity business structure to deduct up to 20% of net business income. This deduction is written into the 2017 Tax Cuts and Jobs Act (TCJA) and may expire if not renewed. 

A tax advisor can help determine your business expense’s eligibility and offer tactics to write off startup costs and half of your 15.3% self-employment tax while managing end-of-the-year federal tax considerations. Learn more in our blog, 7 Tips to Maximize Deductions and Credits in 2024. 

2. Use your tax credits

A tax credit will either reduce the amount of taxes you owe or increase your tax refund from your tax return. Consider taking the following tax credits to support your small business tax planning strategy, and learn more about additional tax credits your business may be eligible for in the blog above.

• Earned Income Tax Credit (EITC). This is one of the better-known tax credits that can apply to individuals with low or moderate incomes.

• Small Business Health Insurance Premiums. Small business owners with fewer than 25 employees who pay at least 50% of employee premium costs qualify for this credit.

• Work Opportunity Credit. If you employ individuals from qualifying groups who have faced significant barriers to employment, you may be eligible for this work opportunity credit.

3. Consider your entity structure

A foundational element of business tax planning is verifying your business entity structure.

Businesses come in all shapes and sizes, offering different benefits and disadvantages. An LLC provides more flexibility in its operations, with personal asset protection and pass-through taxation as popular features. When a business entity, including a sole proprietor running a sole proprietorship, a partnership, and an S corporation, features pass-through taxation, income is not taxed at the level of the business or corporation. Instead, it is passed through to be taxed at each owner's individual taxpayer level.

Although your business is already registered as one entity type, a change may be worth considering. For example, once you form an LLC, you have 75 days to select a different business structure for your new company, such as a C corporation.

Learn about the three tax consequences you should consider in our blog if you are thinking about converting from an LLC to a C Corp this tax season or next year. 

4. Defer or accelerate income

Deferring your small business income and accelerating deductions is an excellent tax planning tax-saving strategy. When you defer your business income, shifting it from one tax year to the next, you can potentially lower your tax bracket and overall tax liability. This shift to a lower tax bracket may qualify you for deductions unavailable to businesses in higher brackets.

The tax deductions your business qualifies for will lower your tax liability further, minimizing the amount you will pay to the IRS and accelerating your income.

5. Set up retirement plans

Even if it seems like a long way off, saving now will help you build a nest egg that ensures a comfortable retirement. As you consider a retirement plan, keep your employees in mind, as retirement contributions are a benefit and a means to retain talent.

Consider offering your employees a retirement plan, which can provide additional tax benefits by lowering your taxable income. Small business owners can offer a 401(k) plan or a simplified employee pension (SEP) plan. It’s important to note that your employees are not required to contribute to a retirement plan. They may instead choose to save for retirement through a Roth IRA, which cannot be deducted from their taxes.

Saving for retirement is another excellent tax planning tactic for small businesses. It can help them save money and better understand their tax bills.

6. Offer employee benefits

Aside from increased wages, the best employees gravitate to employers offering great benefits and other incentives. These can be healthcare-related benefits such as:

• Health insurance

• Dental insurance

• Reimbursement (transportation, tuition, or federal student loan payments)

While no new laws governing employee benefits have passed recently, state and federal discussions about healthcare, telehealth, and expanded family leave exist. While businesses throughout America monitor legislative development impacting employee benefits, many employers are embracing quality of life and financial wellness benefits in the current year. 

7. Sell a losing investment

“When life hands you lemons, make lemonade.” Addressing a poor investment and bad debts may be challenging, but it can be used to your advantage for business purposes when planning your tax strategy and navigating tax laws. If you decide to sell a losing investment, you can categorize this as negative income or a capital loss. This tactic can lower your income and reduce your tax burden.

The maximum amount for a capital loss in 2025 is $3,000. Any amount over that can be applied to the following year.

Tax Planning FAQ for Small Business Owners

Do I need to hire a small business tax planner?
You can attempt to plan your tax strategy yourself,  but you might not get consistently great results as you would working with a tax planning professional. Partnering with a certified public accountant (CPA) ensures you get quality service from a qualified expert committed to maximizing your business's tax savings.

What are the disadvantages of tax planning?
The main drawback of tax planning is the time and effort needed to optimize your savings. You may need to change your business operations as you implement these strategies. Small business tax planning doesn’t guarantee huge savings, and some business owners may want to focus on other aspects of their operations.

How much does tax planning cost?
The cost of tax planning services varies based on your business’s intricacies, such as the number of employees or the range of deductions that may be involved. Browse our standard packages and pricing here, and contact us if you require a package customized to address your unique business needs.

Are there any tax planning scams to be aware of?
Most tax advice focuses on deductions and ways to save money, but it’s also important to be aware of the various tax scams that may impact your business. Scammers are devoted to deceiving taxpayers, often by impersonating the IRS and demanding immediate payment. The IRS will never call, text, or email an individual and request payment or personal information. When in doubt, contacting the IRS directly through their website is best to verify the legitimate notifications you receive.

Maximize Your Savings and Business Profitability with Expert Tax Strategy

An expert tax strategy has numerous benefits, which include boosting business profitability beyond valuable deductions and credits. If handling your small business tax planning has distracted you from your core business operations, the tax professionals at 1-800Accountant, America's leading virtual accounting firm, can help.

Save time and achieve your annual financial goals with our suite of affordable, tax-deductible financial services. Schedule a quick consultation–usually 30 minutes or less—to learn how bookkeeping, tax advisory, and personal income tax preparation and tax filing will help you maintain full IRS compliance with maximum tax savings.