Smart Tax Strategies for Savvy Business Owners

Smart Tax Strategies for Savvy Business Owners

Learn how to optimize tax benefits for your business with the right strategies.

The entrepreneurial lifestyle provides exclusive advantages to those who choose it: career freedom, significant growth potential, and greater schedule control. It also brings, however, unique tax necessities. 

While tax planning may not be the most exciting part of running your business, deploying the right business owner tax strategies and deductions can turn thousands owed into thousands saved. 

Don’t let the complexity of your tax situation overwhelm you. Here, we’ll dive into smart tax strategies and deductions that every business owner can use to their advantage.

Understanding Different Business Structures

The simple truth is that business owners pay taxes differently than traditional employees. The added flexibility helps savvy business owners plan for and pay taxes differently. 

The first step to creating smart tax strategies is to identify and understand how each business structure is taxed:

• Sole proprietorship: This structure is straightforward and affordable to set up and operate. All business income is reported on your personal tax return (known as “pass-through” business income).
• LLC (limited liability company): An LLC is a business structure that provides limited liability protection, meaning your personal assets are shielded from business debts and liabilities. You have the flexibility to choose how your LLC is taxed, either as a sole proprietorship or a corporation.
• S Corporation: An S Corporation is a type of business structure that allows you to enjoy the benefits of limited liability protection, similar to a corporation. However, it’s taxed like a partnership, meaning profits and losses pass through to the owners’ personal tax returns. This can lead to potential tax savings through strategic compensation and dividend distributions.
• C Corporation: Corporations are businesses that are legally separate from their owners. This means the business itself can own property, make contracts, and be sued. One downside of this structure is double taxation. The corporation pays taxes on its profits, and then the shareholders pay taxes on any dividends they receive.Many large businesses choose to organize as corporations because of the legal protections and flexibility it offers.

The tax structure you choose will depend on your business goals, type, partners, and size. Work with a financial advisor to make sure you select the correct setup.

Maximizing Business Owner Tax Deductions

The next step is to fully understand the many business owner tax deductions available to you.

Common business owner tax deductions include:

• Home office expenses if you work from home.
• Employee wages and benefits.
• Vehicle expenses if used for work.
• Work-related travel expenses.
• Office supplies and equipment.
• Professional fees, such as legal services, consultants, etc.
• Insurance premiums.
• Marketing and advertising costs.

You can also benefit from asset depreciation. The Section 179 deduction allows you to take an immediate expense deduction for depreciable business equipment, like vehicles or computer software. 

Bonus depreciation also allows businesses to deduct most of the cost of large purchases in the first year after buying them. Another strategy is depreciating an asset over time in the following tax years.

Traditional W-2 employees aren’t able to take these tax breaks. For example, even if a regular employee works from home, they’re generally unable to deduct their home office expenses on their taxes.

Business Tax Credits

Tax credits can also be a great way for businesses to save money. Companies can reduce their tax liability by meeting certain criteria and potentially receive money back.

For example, the Work Opportunity Tax Credit encourages employers to hire people from certain groups who often face challenges getting work. 

Companies that invest in Opportunity Zones—distressed areas the government has identified in the U.S.—can claim the Opportunity Zones Tax Credit.

There are also tax credits available for employers providing certain childcare benefits and energy-efficient vehicles to their workers.

Business owner tax write-offs change frequently with new legislation and community needs. Always talk with your financial advisor about what you qualify for.

Other Business Owner Tax Planning Strategies

Savvy business owner tax strategies extend beyond deductions and write-offs. Make sure you’re taking on a long-term approach that considers revenue sources and future financial goals:

• Retirement planning: Consider the benefits of investing in traditional IRAs, Roth IRAs, SEP IRAs, or Solo 401(k)s. If you have employees, consider whether you’ll be matching their contributions and what kinds of programs you offer. With your own retirement plan, ensure you’re prioritizing tax-deferred growth.
• Health savings accounts (HSAs): With HSAs, you can enjoy tax-deductible contributions, tax-free growth, and tax-free withdrawals if used for qualified medical expenses.
• Tax-efficient investments: In addition to retirement accounts, the right investment portfolio can set up yourself and your business for success. If you’re focused on your family’s education, consider 529 college savings plans. Invest in municipal bonds for a nice balance of risk and reward, and be strategic with tax-loss harvesting.
• Diversification: Create a diversified portfolio by investing in a variety of assets to spread risk and maximize long-term returns.

Align your business goals with your long-term financial goals through wise investing and tax-effective strategies.

Business Owner Tax Guidance From Avior

Navigating complex tax laws can be a daunting task for any business owner. At Avior, we’re committed to simplifying your tax journey and helping you achieve your financial goals.

Our team of experienced tax advisors will:

• Tailor a tax strategy to your specific business needs.
• Keep you informed about the latest tax changes and regulations.
• Identify opportunities for tax savings through deductions and credits.
• Provide year-round support to ensure optimal tax efficiency.

Ready to take control of your business taxes? Schedule a one-on-one consultation with an Avior advisor today!

Disclaimer: Nothing contained herein should be construed as legal or tax advice. Avior and our Advisors will work with your attorney and/or tax professional to assist with your legal and tax strategies. Please consult your attorney or tax professional with specific legal and/or tax questions. Investment Management and Financial Planner are offered through Avior Wealth Management, LLC, an SEC-registered investment advisor. Past performance is not a guarantee of future results.  Investments are subject to loss, including the loss of principal.