Building Your Business Business Taxes 7 Ways Small Businesses Can Save on Taxes Tax Deductions and Credits You Can Use To Reduce Business Taxes By Jean Murray Jean Murray Facebook Twitter Jean Murray, MBA, Ph.D., is an experienced business writer and teacher who has been writing for The Balance on U.S. business law and taxes since 2008. She has taught accounting, business law, and business finance at business and professional schools for over 35 years, has authored several books on saving money and simplifying your business, and was the owner of startup-focused company Emence Enterprises, LLC. learn about our editorial policies Updated on November 30, 2022 Reviewed by Khadija Khartit Reviewed by Khadija Khartit Twitter Website Khadija Khartit is a strategy, investment, and funding expert, and an educator of fintech and strategic finance in top universities. She has been an investor, entrepreneur, and advisor for more than 25 years. She is a FINRA Series 7, 63, and 66 license holder. learn about our financial review board Fact checked by Hilarey Gould Fact checked by Hilarey Gould Twitter Website Hilarey Gould has spent 10+ years in the digital media space, where she's developed a passion for helping people understand economics, saving, investing, credit card perks, mortgage rates, and more. Hilarey is the editorial director for The Balance and has held full-time and freelance roles at a variety of financial media companies including realtor.com, Bankrate, and SmartAsset. She has a master's in journalism from the University of Missouri, and a bachelor's in journalism and professional writing from The College of New Jersey (TCNJ). learn about our editorial policies Photo: Inti St. Clair / Getty Images The Internal Revenue Code is set up to provide numerous tax breaks to individuals and businesses alike. Even the IRS acknowledges that you must keep some money to live on and with which to run your small business. Some small business tax savings strategies, like timing income and expenses, must be accomplished before the end of the tax year. But others, such as funding a retirement plan, can be done at any time before you file your tax return. If you're looking for ways to save money on your small business taxes, keep reading. Key Takeaways To save money on your small business taxes, utilize tax credits and deductions.You can also open a retirement account for your employees, which offers tax benefits for you and your workers.Timing some business expenses, such as paying for more at the end of the year than at the beginning, may also help you save money on your business taxes. 01 of 07 Utilize the Qualified Business Income Tax Deduction The Tax Cuts and Jobs Act (TCJA) created the Qualified Business Income (QBI) deduction when the law went into effect in 2018. You might be able to deduct 20% from your qualifying business income if your business is a pass-through entity—a sole proprietorship, an S corporation, or a partnership, passing its income and deductions down to its shareholders, partners, or owners to report on their personal returns. This deduction is in addition to claiming your ordinary business expense deductions. You should qualify if your taxable income is below a certain amount—it was $164,900 for single filers and $329,800 if married filing jointly for the 2021 tax year. Special rules apply if you earn more than these amounts, so you might still qualify depending on the nature of your business. The QBI deduction has some other restrictions and limitations, so check with your tax preparer about your eligibility. 02 of 07 Fund a Retirement Plan Setting up and funding a retirement plan for yourself and/or your employees can save you money on taxes. Make sure it's a qualified plan so you can take advantage of those tax savings. It must be one that's recognized by the IRS to allow deferment of taxes on earnings until the earnings are withdrawn. These types of retirement accounts include IRAs and defined contribution plans such as 401(k)s or 403(b)s. Note Many retirement plan options for your employees are available depending on your business, your goals, and your needs. Consider talking with a financial professional to figure out which is best for you. 03 of 07 Take Tax Credits To Lower Your Business Income Tax credits are the federal government's way of encouraging businesses and individuals to do things—or not do things—that affect the greater good. For example, you can take tax credits for hiring employees, implementing environmentally friendly initiatives, providing access to disabled employees and the public, and providing health coverage for employees. Most are part of the General Business Credit, which is quite extensive so it's quite possible that you qualify under some of its terms. Check with your accountant. 04 of 07 Buy Equipment and Vehicles for Depreciation Deductions Businesses can take tax write-offs on purchases of business equipment, machinery, vehicles, and sometimes even real estate. These write-offs can sometimes be taken in the first year you own and use the equipment. The two most common types of this accelerated depreciation are Section 179 deductions and bonus depreciation. Section 179 deductions allow you to immediately deduct the costs of certain assets when you put the assets in service. The maximum deduction increases annually, and is $1.08 million for tax year 2022. Equipment, machinery, buildings, vehicles, and more can qualify. Bonus depreciation is an extra benefit for buying assets. The TCJA also increased this tax break from 50% to 100% of the cost for assets placed in service from Sept. 27, 2017, through January 1, 2023. Talk to your tax preparer if you've purchased any major assets to find out if you qualify. 05 of 07 Deduct the Cost of Gifts You can deduct up to $25 per person for the cost of gifts given to customers and vendors. An exception exists for those that bear your business name, are distributed as a matter of course, and cost less than $4. Note Deducting the costs of entertainment is a bit trickier if you show your appreciation by paying for a good time. These costs are no longer deductible unless the event is directly related to your business in some way. 06 of 07 Time Your Business Income and Expenses Timing your income involves moving it from one year to another. You first have to determine the year in which you expect to pay the most in taxes. Review your current expenses before the end of each year and prepay some of those amounts if you want to reduce your income for the current year. You can also increase your expenses and decrease income by making expenditures, such as stocking up on supplies at the end of the year so that you're covered for the first quarter of the next. 07 of 07 Write Off Bad Debts To Reduce Income The end of the year is also the time to review your customer accounts if your business operates on the accrual accounting method. First, find those customers who aren't likely to pay you. You can write off the amounts they owe as "bad debts" and deduct these amounts from your business income to save on taxes. Bad debts can also include loans made to clients, vendors, or employees who don't pay you back. Check With a Qualified Tax Advisor Consult a tax professional before making any decisions that can affect your business tax return or spending money for the sole purpose of saving on taxes. Make sure you select someone who can help you all year, not just at tax time. Consider hiring an expert who can represent you before the IRS in case you're ever audited. An enrolled agent might be your best bet. These professionals are designated by the IRS because they've passed a strenuous, three-part test, or because they actually worked for the IRS at some point. Frequently Asked Questions (FAQs) When are business taxes due? As a small business, you're required to pay taxes on an annual basis, but you can pay your taxes on a quarterly basis. These are called estimated tax payments and they're usually due in January, April, July, and October. How do you file taxes for an LLC? If you're the only member of your LLC, you can file your taxes using Form 1040, and Schedule C, E, and/or F. If the LLC is an S corporation, you'll have to file Form 1120 or 1120S. If the LLC is a partnership, use Form 1065. IRS Publication 3402 may help you with paying taxes for your LLC. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. IRS. "Instructions for Form 8995." IRS. "401(k) Plan Overview." IRS. "Instructions for Form 3800." IRS. "Publication 946 (2021), How To Depreciate Property." IRS. "New Rules and Limitations for Depreciation and Expensing Under the Tax Cuts and Jobs Act." IRS. "Publication 463 (2021), Travel, Gift, and Car Expenses." IRS. "Topic No. 453 Bad Debt Deduction." IRS. "Enrolled Agent Information." IRS. "Estimated Taxes." IRS. "LLC Filing as a Corporation or Partnership." IRS. "Publication 3402 (03/2020), Taxation of Limited Liability Companies."