4 Ways Small Business Owners Can Reduce Their Tax Bill

May 14, 2023

For small business owners, keeping taxes to a minimum is essential for long-term success. With the right strategies, an entrepreneur can build the potential to save thousands of dollars (or more) each year, meaning you get to take home more of what you’ve earned.

This post discusses practical tips for cutting down on your annual tax bill while staying compliant with IRS regulations. Thankfully, no matter what type of business you run—or its size—there are plenty of strategies available.

This article discusses:

  • Tracking your business finances with a program or app
  • Keeping accurate records of your income and expenses
  • Claiming all the credits and deductions, you're eligible for
  • Planning your retirement contributions to a 401k or IRA  

1. Tracking Your Business Finances With a Program or App

Keeping track of your small business finances could be an overwhelming task if you tried to do it all in your head. There are often far too many moving parts to remember with 100% accuracy. However, with the right software or mobile app, it can be a much more manageable process.

The better ones can make researching and recording expenses, sales, and transactions much easier. Many come equipped with the ability to generate reports that can help you make accurate financial predictions for the future, as well.

When selecting a program or app, think about things like the cost and its compatibility with the systems you currently use. Additionally, look for user-friendly features so that you can maximize your efficiency when tracking the company’s finances.

Keep in mind that most programs also include customer service resources, should there ever be any issues or questions. By choosing the best system for tracking your small business finances, you’ll find yourself moving closer to becoming a more profitable venture.

2. Keeping Accurate Records of Your Income and Expenses

Keeping precise records of your income and expenses is another simple yet effective way to reduce your overall tax liability. By tracking all of your outgoing and incoming payments associated with self-employment, including any applicable deductions, it’s possible to legally lower how much you’re assessed to owe.

Accurate records can help provide evidence of your self-employment status as well as proof of your deductible expenses. In a time when the IRS has made no secret of singling out the financially successful for audits, both have become extremely important. For these reasons and more, maintaining a record system that is organized and easy to refer back to is a no-brainer.

3. Claiming All the Credits and Deductions You’re Eligible For

Claiming all the credits and tax deductions small business owners are eligible for is a great way to potentially lower your taxes, as well. A big part of this sometimes boils down (but isn’t limited) to accurately completing IRS forms and filing on time. Again, by keeping detailed records, it’s usually much easier to maximize your benefit from credits that reduce your taxable income.

Take advantage of all available tax credits and deductions that may help lower your taxes. While most small business owners are familiar with general deductions (such as your mortgage interest and charitable contributions), there are also more obscure ones that you should keep in mind.

For example, these deductions could include employee retention programs where you also qualify as an employee. Similarly, there are deductions and credits specifically related to how much you have paid in W-2 wages during the year. Looking into these lesser-known credits and understanding what you can deduct is seldom, if ever a waste of time.

At the same time, as a small business owner, you should review your finances at least once per year. This is necessary to determine if there are any potential deductions you might have overlooked among your day-to-day business expenses. Simple due diligence like this can save you both time and money (especially when it’s tax season).

What if You Could Increase Your Take-Home Pay Through Little More Than Strategizing Your Taxes?

4. Planning Your Retirement Contributions to a 401k or IRA

Many small business owners overlook the potential tax benefits of planning their retirement contributions. This is a simple, yet all too common mistake. Contributing to a 401(k) plan or IRA can provide the security of a nest egg for future retirement needs at the same time that it helps facilitate distinct savings on your income taxes.

When you make qualifying contributions to an approved plan, they are typically excluded from your taxable income, which means that you can pay lower taxes on the year’s overall earnings. In other words, the money goes directly from your paycheck into the designated account before being taxed, possibly saving you thousands or even tens of thousands on that year's income tax bill.

Depending on the type of retirement plan you’ve chosen, you could also be eligible for partial matching contributions from your employer. This can further reduce taxable income. And we’re not talking pennies here - some of the employer contributions can deduct tens of thousands of dollars.

Consequently, consider carefully which retirement plan offers your best tax savings (as well as which will become properly diversified and meet your long-term financial goals). Especially when inflation and a bear market are shredding some peoples’ retirement nest eggs, you can’t be too choosy. Enjoying the finer things in life right now does not mean that you’re guaranteed a comfortable living in your golden years.

To better ensure that, you have to get proactive, start planning, and strategize your taxes over the longest periods of time possible. Even in today’s economy, it’s possible to see your wealth grow, but that doesn’t happen by accident.

The Sum Total

As a small business owner, you are probably well aware of the value of every dollar. Since Ironclad Wealth Management began as a small business, providing wealth management in Atlanta, I know exactly what that’s like. This is why I’ve shared the steps listed above.

When it comes to finding usable deductions, partnering with an experienced wealth manager can be incredibly beneficial. From tax credits and deductions to inventory management, we use our experience and training to help you keep your finances on track for your objectives.

We specialize in tax planning for small business owners. Contact us and see how easy we can make the entire process for you.

If Patrick Can't Save Your Business $5,000 in Taxes, You Get Your Money Back

MGO One Seven LLC ("MGO One Seven") is a registered investment adviser with the U.S. Securities and Exchange Commission (SEC). Registration with the SEC does not imply a certain level of skill or training. All titles listed for individuals associated with Ironclad Wealth Management represent the individual's role with Ironclad Wealth Management, and not their role with MGO One Seven. Services are provided under the name Ironclad Wealth Management, a DBA of MGO One Seven. Investment products are not FDIC insured, offer no bank guarantee, and may lose value. Please visit our website www.WeAreOneSeven.com for important disclosures.

Please note, the information provided in this presentation is for informational purposes only and investors should determine for themselves whether a particular service or product is suitable for their investment needs. Please refer to the disclosure and offering documents for further information concerning specific products or services.

Nothing provided in this presentation constitutes tax advice. Individuals should seek the advice of their own tax advisor for specific information regarding tax consequences of investments. Investments in securities entail risk and are not suitable for all investors. This site is not a recommendation nor an offer to sell (or solicitation of an offer to buy) securities in the United States or in any other jurisdiction.

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