Taxes: they’re unavoidable and they’re complicated. But the right moves — planned ahead — can lower your bill, reduce stress, and keep your business on firmer ground. These are the ten strategies that I will recommend again and again to the small businesses. I’ll explain each strategy in simple language, give a short example and note the practical things to watch for.
1 — Fund a retirement plan (it’s tax-smart and future-smart)
Saving for retirement isn’t just about the future — it’s one of the easiest legal ways to trim your tax bill right now. If you’re running your own shop, plans like a SEP IRA, Solo 401(k), or SIMPLE IRA let you move part of your earnings into a protected account before taxes are applied. The IRS adjusts the limits almost every year, so it’s smart to double-check the numbers before deciding how much to put away. For many solo owners, the Solo 401(k) is especially handy because you can contribute both as the employer and the employee — a big advantage when you’re the whole team.
Example: If you run a freelance design studio and you can afford to, set up a Solo 401(k). You put aside pre-tax dollars, lower your taxable income for the year, and grow retirement savings with tax-deferred growth.
What to watch: Don’t delay setting up the plan if you want the deduction for a specific tax year — timelines and rules differ by plan.
2 — Use Section 179 and bonus depreciation to accelerate write-offs
If you buy qualifying equipment or property for the business, Section 179 and bonus depreciation let you expense costs faster than old-school depreciation schedules. That’s useful when you want to reduce taxable income in a high-profit year. Limits have changed recently, so pay attention to the current thresholds and phase-outs before you buy.
Example: A small café replaces its point-of-sale system and several refrigerators late in the year. Using Section 179, much of that cost can be deducted in the purchase year, easing that year’s tax burden.
What to watch: Don’t buy equipment just for the deduction — make sure it fits your cash flow and business needs.
3 — Take advantage of the Qualified Business Income (QBI / Section 199A) deduction
Many owners of pass-through entities can claim a QBI deduction worth up to 20% of qualifying business income, subject to limits and wage/property tests. How you structure owner pay, and whether you’re an S-corp, partnership, or sole proprietor, can affect this deduction. Run the numbers with a tax pro before you change entity type just to chase a tax perk.
Example: An S-corp owner balances salary and distributions to hit a sweet spot where QBI provides the most benefit without raising red flags about “reasonable compensation.”
What to watch: The deduction has rules and thresholds; don’t assume it automatically applies at full 20% for every business.
4 — Use retirement plan timing to your advantage (late-year set-ups)
If your profits spike late in the year — or you decide to start a plan after year-end — some plans allow contributions to be made up to the tax-filing deadline (with extensions) and still count for the prior tax year. That timing flexibility is a practical way to lower last-year taxable income if you hadn’t budgeted a retirement plan earlier. Always confirm exact deadlines for each plan.
Example: A consultant has unexpectedly high income in December and funds a SEP IRA before filing; they can often deduct that contribution on the prior year’s return.
What to watch: Different plans have different rules; consult your advisor so you don’t miss a deadline.
5 — Document R&D activities and claim credits when eligible
If you’re improving products, testing new software, automating processes, or doing systematic experimentation, you may qualify for the R&D tax credit. Small businesses can sometimes elect to apply certain R&D credits against payroll tax, which helps startups not yet paying income taxes. This credit requires solid documentation — notes, timesheets, invoices — so start tracking projects early.
Example: A small software shop that spends months prototyping a new feature documents hours and costs, then claims part of those expenses through the R&D credit.
What to watch: Credits trigger scrutiny; keep clear project records and rely on your tax advisor to prepare the claim.
6 — Keep the books clean — it’s the best single strategy you can use
Good bookkeeping is not glamorous, but it’s the foundation of everything: accurate deductions, valid credits, clean payroll, easier audits. Monthly reconciliations, consistent categories, and scanned receipts make tax time calm instead of chaotic.
Example: A landscaping business reconciles bank and credit card accounts monthly; when the CPA asks for documentation, it’s ready — no scrambling.
What to watch: Small errors compound. Fix a messy book earlier rather than later; catch-up bookkeeping costs more.
7 — Mind your entity choice and owner pay structure (tax and payroll implications)
How your business is organized changes how taxes and payroll work. For some owners, S-corp status plus a reasonable salary (and distributions) lowers self-employment taxes — but the IRS expects that salary to be “reasonable.” Changing entity type for a single tax year rarely makes sense; it’s a strategic, long-term decision.
Example: An owner switches from sole proprietor to S-corp when payroll and benefits become regular, reducing self-employment tax exposure while paying themselves a defensible salary.
What to watch: Always run projections. Changes can affect retirement plan options and the QBI deduction.
8 — Use timing: accelerate expenses or defer income when it helps
If you expect a high-tax year, accelerate business expenses (make purchases, prepay some bills) to lower taxable income. In a low-income year, defer invoices where reasonable. These moves are simple but require cash-flow discipline.
Example: A contractor expecting a big taxable project next year speeds up supply purchases in December to offset profit spikes.
What to watch: Don’t cripple cash flow to shave taxes. Timing moves need realistic cash planning.
9 — Look for state and local credits and incentives
Most people focus on federal taxes, but the real savings sometimes show up at the state or city level. A lot of states offer credits for hiring new people, running staff training, or investing in better equipment. Even upgrading your office or shop to be more energy-efficient can qualify you for small but useful incentives.
These programs don’t stay the same for long, so make it a habit to check your state’s tax website or call your local business office once in a while.
For example, one of my small manufacturing clients hired a few long-term local workers and ended up getting a nice state hiring credit that shaved a chunk off their state taxes.
What to watch: Credits often require documentation and specific filing steps — don’t assume they apply automatically.
10 — Treat payroll and employment taxes seriously — they carry real risk
Payroll has strict rules on withholding, deposits, and filings. Outsourcing payroll or using a reliable payroll platform helps maintain compliance, but remember: as the employer, you’re legally responsible if the third party fails. Keep payroll reconciled with your books and check deposits and returns regularly.
Example: A small retailer uses a payroll service, reconciles paychecks monthly, and avoids surprises from missed deposits or tax misfilings.
What to watch: Even with a provider, review filings and keep backup records. The IRS holds employers accountable.
Quick action checklist (what to do in the next 60–90 days)
- Book a tax-planning meeting now (don’t wait until March). A single planning call changes moves you can take before year-end.
- Review retirement plan options and set up one that fits your business size and timing. Fidelity
- Make a short list of capital purchases and decide on Section 179 vs. depreciation.
- Document any R&D-like projects and track hours/costs.
- Reconcile payroll monthly and confirm deposits are being made on schedule. IRS
A few practical cautions
- Tax planning must fit your business goals. Don’t let tax savings drive poor decisions (like buying unneeded equipment).
- Keep records. Deductions and credits require proof. Digital records are fine — but organized.
- When in doubt, run any big move by a trusted CPA — the details matter.
Final thought
Taxes don’t have to be a guessing game. With clear records, simple planning, and a few targeted moves — retirement contributions, smart depreciation choices, and keeping clean books — you can lower your tax burden and sleep better. These strategies work best when paired with a tax pro who knows your business. Take the checklist above, pick two items, and start there.
FAQs
1. What’s the most reliable tax strategy for small businesses?
Keeping clean records and funding a retirement plan are two of the most reliable and broadly effective strategies — they reduce taxable income and protect you during audits.
2. Can R&D credits really help a tiny startup?
Yes. If you’re developing new or improved products or methods, tracking costs can lead to meaningful credits. Small businesses can sometimes apply certain R&D credits against payroll tax. Documentation is essential.
3. Should I change my entity just for a tax benefit?
Usually no — entity changes should reflect long-term business needs. Tax benefits are a factor, but don’t be driven by a single year’s tax trick; consult your advisor first.
