10 Tax Strategies for Business Owners to Lower Your Tax Bill

9.5 MIN READ

Smart tax strategies for business owners become crucial as your business grows and generates more revenue. Many entrepreneurs focus primarily on increasing sales and expanding operations, but effective tax planning can help you preserve millions in wealth over time.

So, successful entrepreneurs need a comprehensive tax strategy that goes beyond basic deductions and credits - and it needs to be legal and sustainable. You should understand both immediate tax-saving opportunities and how to preserve your wealth in the long term.

In this guide, we'll break down some of the best tax strategies for small business owners, especially as your business starts to make substantial revenue.

What Are the Best Tax Strategies for Business Owners?

There are many tax strategies for business owners that you can take advantage of. All businesses are unique - especially if you're an immigrant owning a US business - and as your business income increases, the complexity of available tax planning options expands as well.

Working with a qualified accountant or a tax professional is a great way to implement coordinated strategies that work together to minimize your overall tax burden while building your wealth.

That said, it's also important to understand this subject matter yourself. Here are a few tax planning strategies for high-net business owners that you should know.

10 Tax-Saving Strategies for Business Owners to Consider

1. Take Advantage of Every Deduction and Tax Credits

This may sound basic, but business deductions directly reduce your taxable income, and many business owners don't take full advantage of them.

Common small business deductions include:

Business equipment
Travel expenses
Employee salaries
Office space costs

However, advanced tax planning helps you identify less obvious deductions that many business owners overlook, such as professional development expenses and certain entertainment costs, when properly documented.

Tax credits provide even greater value since they reduce your tax liability dollar for dollar. For example, research and development credits reward innovation in your business processes. Understanding and documenting these opportunities throughout the year helps you maximize their benefit.

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2. Contribute to a Retirement Plan

Retirement savings have two benefits: immediate tax advantages and long-term wealth accumulation.

High-income business owners can contribute substantial amounts to qualified retirement plans. This will typically reduce your current taxable income and build tax-deferred investment growth.

Solo 401(k) plans work well if you're self-employed, and SEP IRAs accommodate varying annual contribution levels. Defined benefit plans allow for the highest contribution limits, so they're particularly beneficial for older business owners who want to accelerate retirement savings.

If your business has employees, your contributions to employee retirement accounts generate tax deductions. The government also offers tax credits specifically for establishing new retirement plans, covering setup and administration costs.

Related Article | Pros and Cons of a Self-Directed IRA

3. Reduce Your Adjusted Gross Income

Your adjusted gross income (AGI) determines many of your tax obligations. For business owners with pass-through entities, business profits flow to your personal tax return. This means your business income directly affects your AGI.

High AGI levels trigger additional taxes. For example, your Medicare tax rate increases by 0.9% when your AGI exceeds $200,000 (single) or $250,000 (married filing jointly).

However, there are a few strategies that can help you reduce your AGI. You can contribute to tax-deferred retirement accounts, itemize deductions to lower your tax bill, and use a health savings plan.

4. Defer Revenue Recognition

Smart timing of your income and expenses can help reduce your tax burden. This strategy works especially well for cash-basis businesses.

In high-profit years, consider pushing some income into next year while paying more expenses this year. This spreads your tax burden across tax years.

For example, you might delay December invoices until January or prepay certain expenses in December.

In lower-profit years, do the opposite. Try to collect more income before December 31 while delaying expenses until January. This takes advantage of lower tax rates in your current year.

Looking ahead to 2026, tax rates may increase when current tax laws expire. The top tax rate could rise from 37% to 39.6%. So, business owners may benefit from earning more income in 2025 at lower rates.

5. Make Family Gifts

Current tax laws allow you to transfer significant business wealth to family members tax-free, but, likely, these favorable conditions won't last forever.

The current gift tax exemption lets you transfer up to $12.92 million ($25.84 million for married couples) without triggering gift taxes.

However, these limits will drop substantially in 2026, returning to roughly half their current levels. This creates an important opportunity to transfer business wealth now.

One effective approach is gifting non-voting shares to your family members. This strategy moves business value out of your estate, but you still maintain your control over company operations.

You can transfer significant wealth to your children without giving them management authority.

It's important to start planning these transfers early because your strategy will depend on your business structure, family dynamics, and long-term goals.

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6. Change Your Business Structure

Your business structure plays a huge role in your tax obligations. While this isn't true for every business, some entrepreneurs can benefit from organizing as an S-corporation to reduce their small business tax.

An S-corporation can help you reduce self-employment taxes. Unlike limited liability companies (LLCs), S-corporation owners can split their income between salary and distributions.

You still must pay yourself reasonable compensation as an employee, but you can take additional profits as distributions that avoid self-employment tax. With the right small business tax planning, this can potentially help you save tens of thousands of dollars every year.

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7. Understand Payroll Taxes

Remote work creates new opportunities for hiring talent, but it also brings additional tax obligations. Each location where your employees work can trigger different payroll tax requirements.

When employees work from different states, you must comply with each state's specific payroll tax rules. This includes proper registration, tax withholding, and filing requirements.

When you hire internationally, it's even more complicated. You'll have to comply with foreign tax laws and employment regulations.

This doesn't mean that you shouldn't hire remote workers - domestically or internationally. Just make sure to review the tax implications for each location and work with a qualified tax advisor to establish proper payroll processes for each jurisdiction where your employees live.

This will prevent costly compliance issues and unexpected tax obligations.

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8. Take Advantage of Green Energy Tax Credits

One of the most underrated small business tax strategies is green energy investments.

Currently, Section 179 allows you to deduct up to $1,220,000 in equipment purchases for 2024. This benefit applies to both new and used equipment placed in service during the tax year. The deduction begins to phase out when equipment spending exceeds $3.05 million.

For larger purchases beyond Section 179 limits, bonus depreciation comes with additional tax savings. In 2024, you can deduct 60% of qualified equipment costs through bonus depreciation.

The Inflation Reduction Act also created nice tax incentives for green energy investments. These credits support:

Electric and hybrid vehicle purchases
Clean energy equipment installation
Energy-efficient building improvements

That said, in lower-profit years, consider delaying major purchases until the next tax year when deductions might provide more value.

9. Explore Employee Benefit Programs

Employee benefits support your team and reduce your tax burden, so it's a win-win.

Health insurance premiums paid for employees count as tax-deductible business expenses. Similarly, matching contributions to employee retirement accounts generate immediate tax deductions for your business.

Dependent care assistance programs allow employees to use pre-tax dollars for childcare expenses. This reduces their taxable income while helping them manage family responsibilities. Transportation benefits and flexible spending accounts also have additional tax advantages.

The tax savings are nice, but these benefits also improve employee retention and recruitment, which also saves you money in the long run.

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10. Hire a Tax Professional for the Biggest Tax Benefits

Your tax strategy is going to become increasingly complex as your business grows. It's only natural. Getting professional tax guidance will help you better understand concepts like qualified business income, estimated tax payments, personal income tax, and more.

They also stay up to date with tax law changes, which helps structure transactions and time major purchases. If you're not working with a qualified tax professional yet, we strongly recommend it.

How To Pay the Least Amount of Taxes as a Business Owner?

There's no single way to pay the least amount of taxes as a business owner, but there are multiple strategies that can help.

For example, you can qualify for the S-corporation tax status to lower your self-employment taxes and maximize available deductions through retirement contributions, health savings accounts, and strategic equipment purchases.

FAQs

How Can an LLC Avoid Self-Employment Tax?

There's no legal way for an LLC to avoid self-employment taxes, but converting your LLC to an S-corporation allows you to split your business income between your salary and distributions. You'll have to pay self-employment taxes on your reasonable salary but not on the distributions. Your salary must be reasonable to avoid IRS scrutiny - in other words, it can't be too low just to avoid self-employment taxes.

How To Pay Yourself as a Business Owner?

It largely depends on your business structure. S-corporation owners should pay themselves a reasonable salary plus distributions. LLC owners can take owner draws. C-corporation owners receive salaries and dividends. All of these ways of paying yourself as a business owner have their own tax implications.

How Do High-Income Earners Avoid Taxes?

There are many ways for high-earning entrepreneurs to minimize their taxes and keep more of their hard-earned money in their pockets. For example, you can maximize tax-advantaged accounts like retirement plans and health savings accounts. You can also change your business structure or make gifts to your family. Ultimately, there's no blueprint - work with a qualified professional to create the best tax strategy for you.

How To Reduce Taxable Income with S-Corp?

S-corporations can help you save on taxes through income splitting. You can pay yourself reasonable compensation as a salary and take the remaining profits as distributions that avoid self-employment tax. You can also implement retirement plans and health insurance programs for more tax benefits.

What Are the Biggest Tax Mistakes Business Owners Make?

Tax strategies are complicated, so it's easy to make mistakes. Common ones include missed deductions, improper business structure selection, and not planning how you're going to do your taxes throughout the year, so you miss opportunities once tax season rolls around. Working with a qualified tax professional will help you avoid these - and many other - business owner mistakes.

The Bottom Line

You'll need to combine multiple legal strategies for strategic tax planning.

Business structure, timing of income and expenses, retirement planning, and employee benefits all play important roles in reducing your tax liability. You also need to make the most of the upcoming tax code changes. A qualified tax professional can help you reach all these goals.