Tax Strategies Every Small Business Owner Needs to Know
Running a small business comes with unique tax challenges and opportunities. The difference between a well-managed tax strategy and a haphazard approach can amount to thousands of dollars annually.
Choosing the Right Business Structure
Sole Proprietorship
The simplest structure, reporting business income on Schedule C. All net income is subject to self-employment tax (15.3% on the first $176,100 in 2025, plus 2.9% Medicare on all earnings). While administratively simple, this often results in the highest tax burden for profitable businesses.
S-Corporation
For profitable businesses, S-Corp status can significantly reduce self-employment taxes. As an S-Corp owner-employee, you pay yourself a reasonable salary (subject to payroll taxes) and take remaining profits as distributions (not subject to SE tax). A business netting $120,000 with a $70,000 salary could save approximately $7,650 in SE tax annually.
LLC
An LLC provides liability protection while offering tax flexibility. Evaluate the break-even point — S-Corp election typically makes sense when net profit exceeds $40,000-$50,000 annually.
Entity Selection Tip
Use our self-employment tax calculator to see the impact of different structures on your tax bill.
Maximizing Business Deductions
Section 179 and Bonus Depreciation
For 2025, Section 179 allows you to deduct the full purchase price of qualifying equipment up to $1,250,000 in the year of purchase. Bonus depreciation allows 80% first-year depreciation on new and used property.
Vehicle Deductions
Standard mileage rate (67 cents per mile) or actual expenses. For 15,000 business miles, the standard rate yields approximately $10,050 in deductions.
Home Office Deduction
Simplified method: $5/sq ft, max $1,500. Actual method often yields a larger deduction for those with higher housing costs.
Commonly Missed Deductions
- Business insurance — Liability, professional, property, cyber insurance
- Professional development — Courses, conferences, certifications
- Business meals — 50% deductible when business-related
- Bank and credit card fees — Monthly fees, transaction fees
- Software subscriptions — Accounting, CRM, project management
- Startup costs — Up to $5,000 deductible in year one
Quarterly Estimated Tax Payments
If you expect to owe $1,000 or more in tax, you must make quarterly payments. The 2026 deadlines: April 15, June 15, September 15, and January 15, 2027. The safe harbor rule: pay at least 100% of prior year liability (110% if AGI exceeds $150,000).
Retirement Plans for Business Owners
- SEP-IRA: Up to 25% of net SE income, maximum $69,000
- Solo 401(k): Employee $23,500 + employer up to 25%, combined max $69,000
- SIMPLE IRA: Employee $16,500, plus employer match
The QBI Deduction
Section 199A allows eligible business owners to deduct up to 20% of qualified business income. Phases out at $191,950 (single) or $383,900 (MFJ) for service businesses.
Recordkeeping Best Practices
- Use separate bank accounts for business
- Scan and digitize all receipts immediately
- Reconcile books monthly
- Track mileage with a digital app
- Document the business purpose of every expense
- Keep records for at least 7 years
Consider our bookkeeping and tax planning services to stay organized year-round.