Young man sitting at his desk calculating his deductions and credits to maximize his business tax return.

We all know that paying taxes is a necessary part of life. You may have already read our guide on how to prepare business taxes. So, you may now be wondering about how to maximize your tax return. Thankfully, you can save some money while doing so. Most taxpayers are eligible to claim certain tax deductions and credits, which can help ease the burden of your tax return. If you learn how to maximize tax deductions, you’ll ultimately benefit from more money that can be used to save, invest, or spend on other small business expenses.

So, what does maximize deductions and credits mean? Maximizing deductions and credits refers to leveraging all the tax deductions and tax credits available to you in order to reduce your taxable income. Doing so can potentially decrease your tax liability and increase your tax refund. It helps to understand the difference between the two. A tax credit pays off a portion of your owed taxes. A tax deduction reduces your taxable income. Tax deductions vary depending on your industry; for example, there are rental property tax deductions and deductions for freelancers.

Many small business owners unknowingly overpay on their taxes because they don’t take advantage of every deduction. Getting help from a professional ensures that your small business taxes are filed correctly to maximize deductions and credits. Continue reading as we dive into 7 tax saving strategies that can save your business money this tax season

Examples of Tax Deductions

As noted above, a tax deduction is used to reduce your taxable income. You’ll then pay taxes on this lowered income amount. Here are a few examples of tax deductions:

  • Health insurance: Freelancers with independent healthcare plans can deduct this cost from their annual tax returns.
  • Property taxes: This type of deduction would apply to individuals who own rental property because it would be considered a business expense.
  • Travel expenses: Individuals who work as self-employed truck drivers can often deduct the costs of lodging and some meals while on the road.

    • Examples of Tax Credits

    A tax credit will either lessen the amount of taxes you owe or increase your tax refund. Two examples of tax credits for individuals include:

  • Earned Income Tax Credit (EITC): This is perhaps one of the better-known tax credits that can apply to individuals who have a low- or moderate-income level.
  • Plug-in Electric Drive Vehicle Credit: Qualifying individuals who purchased an electric vehicle (EV) after August 16, 2022 may be eligible for this credit.

    • Maximizing Your Deductions and Credits

    You’ll need to do some research and planning to identify tax deductions and credits you may be eligible to take. It’s a good idea to prepare early and incorporate your tax considerations into your regular bookkeeping practices. Maintaining basic small business bookkeeping records will make tax season a bit easier and help you maximize your deductions.

    Begin by keeping a running list of your itemized deduction list throughout the tax year. Don’t wait and record a business expense at the end of the quarter or even at the end of the month. You’ll save yourself a lot of effort by recording the expense immediately. Don’t forget to track your receipts. These practices will help your own record-keeping, but they’ll also prove valuable if you receive an audit from the IRS.

    Tax deductions and credits often have a lot of fine print, so it takes some time to fully understand what you may be eligible to take. It’s best to work with a professional to ensure you’re not overlooking any critical details.

    Read on as we discuss the top 7 tips on how to get more tax deductions for your business.

    1. Make 401(k) and HSA Contributions

    Regardless of your current age, you should always understand the importance of saving for retirement. This crucial practice offers two benefits – increasing your tax savings and maximizing your tax deductions. However, know that the Internal Revenue Service sets annual limits on how much of your retirement contributions you can deduct from your taxes. If possible, try to contribute the maximum amount to gain the most benefits.

    Your income level and 401(k) status will determine these IRA deduction limits. If your retirement plan is through an employer, make sure to take the maximum amount out of your income that you can comfortably afford.

    An alternative to a 401(k) plan is a Roth IRA, which is funded with your after-tax income. This means that Roth IRA contributions are not eligible to be deducted from your taxes.

    Some individuals may also choose to contribute to a health savings account (HSA), which can be deducted from their taxes. According to the IRS, these contributions are tax-free if they’re used for qualified medical expenses. For 2022, Individuals can deduct up to $3,650 and $7,300 for families, which is stated on form Rev. Proc. 2021-25.

    2. Make Charitable Donations

    A charitable donation to a worthy cause will not only help you feel good about supporting a worthy cause, but it can also help you during tax season. Some charities may provide you with an end-of-year statement if you’re a regular donator, but it’s also a good practice to keep track of your charitable contributions yourself.

    Remember to itemize your deductions if you want to lower your adjusted gross income through charitable donations. Claiming a standard deduction for charitable contributions won’t affect your tax return.

    In most cases, the limitation on deductions is 50% of your adjusted gross income, and the deduction must be made to a qualified organization. This deduction is likely only worthwhile if you make significant contributions, but it’s always a good idea to confirm with a tax professional.

    3. Postpone Your Income

    Taxes revolve around the calendar year, and any expenses you deduct must occur within the applicable tax year. In other words, you can’t preemptively deduct an expense that you plan on paying in 2023. You also aren’t obligated to pay taxes on the income you haven’t yet received.

    This creates a unique opportunity for you to defer your income from the current year to the next. Some may choose this option if their income fluctuates a lot every year.

    Since you only pay taxes when you physically receive your income, you can choose to delay your end-of-year payments until after December 31, 2022. This income would then be considered for your 2023 return.

    This strategy doesn’t mean you’re no longer responsible for paying taxes on that deferred income. It’s simply a way to help reduce your tax payments for the current year, which can have a significant impact if you’re right on the border of a tax bracket.

    4. Pay for Your Business Expenses Early

    Similar to your income, small business tax deductions are claimed during the same year that you pay for them. Just as you can postpone your received income to the following year, you can maximize your deductions by making early charges for business expenses.

    Small business owners should always be aware of tax-deductible business expenses, which can provide even more tax benefits if they overlap with higher income.

    Consider any last-minute business expenses you may need to make before the end of the year. These expenses will still count towards 2022, even if you don’t take possession of the goods or services until the following year.

    5. Consider Your Losing Investments

    While it may not feel good to think about an investment that didn’t go as planned, you may be able to use that loss to your advantage and decrease your adjusted gross income. Selling a losing investment can be considered negative income, which reduces your taxable income.

    The limit for claiming capital losses is $3,000, and anything beyond that can be carried over to the next year. These losses can also be counted against future capital gains.

    6. Don’t Forget About Office Expenses

    It’s easy to overlook all the miscellaneous office expenses you need to keep a business running. Make sure to keep track of office supplies like stationery and printer toner, and even rent and utilities if you work from home.

    The specific details on these expenses can be a little complex, so it’s recommended to review with a professional before making these deductions on your tax return.

    7. Consult a Tax Professional

    You shouldn’t expect to know every single tax deduction and credit that’s available. Tax legislation differs at the federal and state levels.

    Reach out to a tax professional who can help you maximize deductions and credits. You may already know some basics, but it’s helpful to have another perspective from someone who’s actively working for you to maximize deductions and credits for your business.

    Tax returns require a lot of careful consideration and the right expertise. Trust the experts at 1-800Accountant to provide comprehensive tax services for your small business needs. Check our small business tax checklist for more helpful tips.

    Small Business Tax Deduction FAQs

    How do small businesses reduce taxes?

    There are several ways small businesses can reduce their tax bill. The best way to do so is to maximize all qualifying tax credits and deductions. Small business owners can employ family members, change their business structure to a more favorable one, and offer a retirement account for employees. 

    How much can small businesses make without paying taxes?

    If your earnings from your small business or self-employment side gig net you more than $400 in a single year, you must file an income tax return. 

    What deductions can I claim without receipts?

    It’s always best practice to keep as many receipts and invoices as possible for tax filing purposes. However, keeping track of so many records can be difficult, especially if you don’t have a dedicated bookkeeper or accountant. You can claim up to $300 in deductions on your taxes without receipts.

    This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. 1-800Accountant assumes no liability for actions taken in reliance upon the information contained herein.