8 Tax Filing Strategies for Small Business Owners

Small restaurant owner talking on the phone as she tracks her business orders on a laptop

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If you’re a business owner, then tax season can bring on a whole new set of tax-related challenges. Fortunately, there are a number of valuable tax filing strategies to maximize credits and deductions that can benefit a business owner.

While tax deductions and tax credits both reduce how much tax you owe, tax credits are the more valuable of the two. That's because they reduce the amount of tax you owe, dollar-for-dollar, after your tax liability has been calculated. Deductions, on the other hand, reduce the amount of income used to determine what you owe, and their effect is less pronounced than a credit (generally by the same percentage of the tax bracket you land in).

Determining what federal tax forms you need to file will depend on the form of your business. Each form of business—sole proprietorship, partnership, corporation, S corporation, and limited liability company (LLC)—has specific sets of filing rules. When it comes to state taxes, your requirements will also depend on the legal structure of your business.

Many small business owners find comfort in working with a CPA or qualified tax professional. If you feel comfortable enough to prepare your taxes on your own, there are several great filing strategies to maximize credits and deductions that you'll want to be aware of.

1. Claim the Health Care Tax Credit

You’ll want to speak to your CPA to make sure you’re eligible, but the health care tax credit can produce some savings. This credit benefits employers with fewer than 25 full-time employees that pay an average salary of less than $56,000 per year and pay at least half of employee health insurance premiums.

If you cover at least 50% of your employees' health insurance premiums and meet other qualifications, the Small Business Health Care Tax Credit could provide a tax credit of up to 50% of your related costs. See the government's guide to Small Business Health Options Program (SHOP) and other resources for details.

2. Deduct Certain Property

Known as Section 179 property, this deduction can include up to $1,000,000 of eligible business property. You can only deduct the full amount in the year your business began using the property, so it works well for those who have recently moved, or for business owners who acquired new property used for transportation, manufacturing, business, or research.

3. Deduct Charitable Contributions

Sole proprietors, partnerships, LLCs, and S-corporations can't deduct charitable contributions as a business expense, but the business owner can claim any contributions made by the business as an itemized deduction on Schedule A of Form 1040.

Even taxpayers who do not itemize can claim a deduction for cash donations to qualified charitable organizations. You can claim a deduction of up to $300 for charitable contributions made by cash or check during the tax year.

4. Pay Attention to Miscellaneous Deductions

Out-of-town business travel, ATM card fees for your business, and even newspapers bought to conduct your business can be used as deductions.

5. Claim the Work Opportunity Tax Credit

If your business is eligible, this credit can be beneficial to your tax filing and is available to those who hire veterans, residents of certain communities, SNAP recipients, and members of other targeted groups. The credit amount can vary, but in general, you can receive up to 40% of the first $6,000 of qualified wages paid to a new hire from one of the specified groups.

The federal government levies four basic types of business taxes: income tax, self-employment tax, taxes for employers, and excise taxes. The IRS has a helpful Guide to Business Taxes that provides details on each of these types of tax.

6. Claim a Credit If Your Business Provides Child Care Expenses

If your business pays for your employees’ child care expenses, you can receive a tax credit. The credit is 25% of the expenses paid, up to $150,000 a year. In some cases, this is a better tax break for you than claiming your own child tax credit on an individual return. 

7. Claim the Pension Plans Startup Cost Credit

If you’ve just started a pension plan for your employees, you may be eligible for a credit. It’s worth up to $5,000 for the first three years of the plan to help small businesses recoup the costs of starting a plan.

8. Deduct Health Care Premiums

This doesn’t apply to group plans, but if you're self-employed, itemize, and have an individual health plan, and pay premiums out-of-pocket, those premiums may be used to adjust your income.

Article Sources

  1. U.S. Centers for Medicare and Medicaid Services. "The Small Business Health Care Tax Credit."

  2. Internal Revenue Service. "New Rules and Limitations for Depreciation and Expensing Under the Tax Cuts and Jobs Act."

  3. Internal Revenue Service. "Publication 535: Business Expenses," See 'Charitable Contributions.'

  4. Internal Revenue Service. "Publication 526: Charitable Contributions," See 'Cash contributions for individuals who do not itemize deductions'.

  5. Internal Revenue Service. "Work Opportunity Tax Credit."

  6. Internal Revenue Service. "Form 8882: Credit for Employer-Provided Childcare Facilities and Services."

  7. Internal Revenue Service. "Retirement Plans Startup Costs Tax Credit."

  8. Internal Revenue Service. "Topic No. 502 Medical and Dental Expenses."