If you operate a small business in the U.S, you most likely understand how fast taxes eat into your earnings. Good news? There are lots of legal methods to lower your tax bill - and many are easier than you may think.
Large numbers of small business owners overpay on taxes annually because they overlook available deductions, credits and techniques, as shown in the IRS statistics. In fact, a 2023 QuickBooks survey discovered 48% of small business owners are overwhelmed by tax season and also many do not understand how much they can legally deduct.
The key is planning ahead and understanding the rules. Consider these ways to reduce your tax bill legally and retain much more of the money you make.
How You Can Lower Your Tax Bill in the USA?
Below are 10 ways to help you lower your Tax bill:
1. Hire Family Members
Hiring a partner or kids will enable you to save on taxes. If your kids perform hard work for your business - taking care of social media, delivering orders or even assisting at functions - you pay them a salary and it is tax deductible to your company.
For kids under 18 years of age, you do not pay Social Security, Medicare or unemployment taxes if you're a sole proprietor or a partnership where both partners are parents of the child. Plus, the very first $14,600 they earn is taxable as part of the standard deduction.
Just be sure the pay is affordable and the work is legit.
2. Open a Retirement Plan
Saving for the future may help you lower taxes now. You have several choices as a small business proprietor :
- Solo 401 (k): For self employed individuals without workers (except a spouse). You can contribute $69,000 (or $76,500 in case you're 50 +).
- SEP IRA: For businesses with or without workers. Contribute up to 25% of compensation (around $ 69,000 ).
- SIMPLE IRA: Great if you have 100 or fewer employees. Easy to set up and still offers tax-deferred savings.
These plans reduce your taxable income and your money grows tax-free until retirement.
3. Deduct Health Insurance and Use an HSA
If you are self-employed, you might be able to deduct your Health Insurance payments for yourself, your loved one, along with dependents. This is really a huge deduction in case you are paying out of pocket.
In case you have a high deductible Health plan, you may also contribute to a HSA:
- For single coverage $4,150.
- For family coverage $8,300.
HSA contributions are deductible and funds grow tax-free. You may even withdraw money tax-free to spend on medical bills.
4. Pick the Right Business Structure
How your business is organized impacts how much you pay in taxes. Numerous small business owners begin as sole proprietors, and that isn't always the most tax effective structure.
- S Corporations (S Corps): You pay yourself a salary (payroll taxes included) and receive the remainder as profit distributions (no self-employment tax included). This could lower your tax bill overall.
- LLCs (Limited Liability Companies): These give flexibility. You select the way to be taxed - as a sole proprietor, partnership, or S Corp.
The setup you select depends upon your goals and income. Talk to a tax expert prior to implementing changes.
5. Deduct Business Travel & Vehicle Use
If you travel for work (even within your city), you might be able to deduct:
- Flights along with hotel stays.
- Vehicle rentals or mileage.
- Business meals (60%).
- Taxis, rideshares and parking fees abound.
In case you drive for business, you may also deduct vehicle usage. Both ways are possible:
- Standard mileage: 67 cents a mile in 2024.
- Actual expenditures: Gas, insurance, maintenance, etc.
Either way, track your miles and keep records. In case you are audited, the IRS might request proof.
6. Write Off Your Home Office
Do you work from home? You can get the home office deduction if you use a space inside your house frequently and exclusively for business.
You are able to compute it either way:
- Simplified approach: Up to 300 square feet, subtract $5 per square foot.
- Regular method: Take a percentage of your actual costs (rent, utilities, internet).
This deduction can be obtained even though you don't own your house - renters can get it as well. Additional office expenses like software, accessories and telephone calls may be deducted too.
7. Take Advantage of Section 179
Whenever you purchase equipment for your business-like computers, machinery, or business furniture - you don't have to write it off over an extended time period. You can deduct the total cost in the entire year you purchase and make use of it ,thanks to Section 179.
You can deduct up to $ 1,220,000 through Section 179 in 2024
This is particularly helpful if you're making big purchases . Just make sure they are used more than 50% for business.
8. Claim Startup Expenses
In case you just started your business, you might be able to deduct Startup and organizational Costs. The IRS lets you deduct approximately $5,000 in startup costs and $5,000 in organizational expenses in your first year.
Deductible startup costs include:
- Legal & accounting fees.
- Marketing and advertising.
- Business licenses.
- Market study.
Beyond the $5,000 ceiling may be spread over several years (amortized).
9. Use the Qualified Business Income(QBI)
One of the greatest tax breaks for small businesses would be the Qualified Business Income (QBI) deduction. This enables particular individuals to deduct up to 20% of their qualifying income from business.
This deduction is available for:
- Sole proprietors.
- Partnerships.
- S Corporations (s Corp).
- Some LLCs.
Service businesses (like doctors or consultants) have income limitations and restrictions but many small businesses remain eligible.
10. Monitor Every Deduction
This might be a basic suggestion, but keeping track of all your expenditures is among the greatest methods to legally lower your tax bill. Missed deductions equal missed savings.
These are some commonly forgotten deductions:
- Bank/credit card charges.
- Education and training expenses are incurred.
- Business insurance.
- Software subscriptions.
- Professional services (lawyer, accountant, consultant).
Keep organized using accounting software or a bookkeeping app. Keeping receipts, tracking miles and recording costs frequently makes tax time simpler.
Also Read| IRS 2025 - New Rules for Multimillionaires’ Tax Audits
Conclusion
Taxes are most likely your largest business expense, but you shouldn't accept the bill as it is. You can legally lower your tax bill - just know where you can look and plan in advance.
Almost half of small business owners do not feel certain they're fully using offered tax deductions, as reported by the National Federation of Independent business (NFIB). That means more are paying than they should.
Hire family members, put together a retirement plan, deduct health insurance and structure your business right and you will get to keep a lot more of your income and that too legally. Also, stay organized and ask a trusted tax advisor like The Fino Partners if you have questions about what applies to you.
