Koto Amatsukami // Shuttersock
5 ways in which small businesses can reduce taxes in 2025
If you wait until the tax season to think about taxes, you are already late. The number one error Ramp He sees that small businesses do when it comes to taxes is not planned.
The majority of small businesses deal with taxes as an obligation once a year. They meet their accountant in March or April, deliver a pile of documents and expect the best. At that time, most of the opportunities to reduce taxes have gone.
Fiscal savings occur before the end of the year, not by submitting a statement. Some of the most successful business owners know that fiscal planning is a process throughout the year, not a unique event.
The good news? You can still find a qualified counter And make changes now that they will reduce your tax bill in 2025.
How to reduce commercial taxes
Here are five strategies to help you keep more of your money earned so much effort.
1. Choose the correct entity structure
Always plan from the base. Its commercial structure determines the amount of taxes it pays, and the incorrect election could be costing thousands of dollars per year.
The key is to align its entity structure with its current income and its long -term commercial objectives. You must also weigh legal considerations and operational considerations with tax savings.
A single property or Llc of a single member It may seem easier, but often results in higher taxes for small businesses. All profits are subject to self -employment tax, which is 15.3% in addition to their regular income tax.
If your business generates more than $ 80,000 in net profits annually, the choice to become a S-Corporation It could lead to significant fiscal savings. Although there is no exact number of magic gain, it is often where we see that business owners have tax savings that exceed additional compliance and administrative costs.
With a S-Corp, you can take a reasonable salary and pay the rest as distributions, which are not subject to self-employment tax. This can significantly reduce your tax responsibility.
For some large companies and heavy reinvestment needs, it may be worth considering a C. Corps C corporation is taxed at a fixed corporate rate of 21%, which could be lower than its personal tax rate, depending on its income level. However, this structure requires careful planning to avoid double taxes on dividends. Finally, C Corporations are also a long -term fiscal planning maneuver for those who seek to climb quickly and leave. If you plan correctly, you may get the lucrative Exclusion of QSBS.
Takeeway Key: If you have not reviewed your commercial entity in the last two years, it is time for a check. Their tax savings could be hidden in their structure.
2. Maximize tax deductions and optimize IRC 199A
Every dollar that deduces is a dollar that is not taxed. However, the majority of small businesses underutilize deductions or do not document them correctly, which leads to lost opportunities.
Common deductible expenses include:
- Travel and accommodation related to the business
- Office expenses at home (a rental part, public services and the Internet if you work from home). Depending on the structure of your entity, the deduction method here varies.
- Marketing and Advertising Costs
- Professional services such as legal and accounting rates
- Equipment and software purchases
- Employee Salaries and Benefits
- Banking rates and transaction rates
- Interest
- Depreciation in asset purchases (especially beneficial for large asset purchases through the use of section 179 or 168k)
Beyond the normal commercial deductions, the 199A section of IRC, also known as the Deduction of qualified commercial income (QBI)It is one of the most powerful tools available. This provision allows the owners of eligible small businesses to deduce up to 20% of their qualified commercial income.
However, the rules are complex. Your eligibility depends on your total income, the nature of your business and if you pay W-2 wages. Services -based companies, such as law firms, medical practices and consultants, face additional restrictions when their income exceeds a certain threshold (known as SSTBS).
Maximize this deduction may require:
- Adjust how you pay yourself. In some cases, it may make sense to take a higher salary as the owner of a S-CORP business to optimize its 199A deduction.
- Hiring W-2 employees instead of using contractors: the formula can analyze the total paid salary. If you do not have salaries and all contractors, you can miss completely.
- Restructuring of income or expenses before the end of the year
If you are not planning proactively around 199a, you could leave a deduction of five or six figures on the table. The higher its income, the more sophisticated and important the planning in this area will be.
3. Find and use fiscal niche credits
Most business owners are familiar with commercial tax deductions, but tax credits provide even more powerful savings. Unlike deductions, which reduce taxable income, tax credits reduce their dollar dollar tax bill. There are fiscal and state tax credits and the government often use to encourage certain types of investment or commercial behavior.
The problem? Many small companies do not take the time to identify what credits qualify for. Here are some that can be applied to you:
- Research and Development (R&D) Fiscal Credit—Heverable to companies that develop new products, software or processes. Even small improvements in existing processes can qualify. He R&D tax credit It is often misunderstood and can even compensate for payroll taxes if it is not yet profitable. However, there are complications later 2017 TCJASo it is better to work with a specialist in this tax credit.
- Fiscal Credit of Work Opportunities (WOTC)—Proots tax savings for hiring specific groups, such as veterans or unemployed individuals in the long term. Business owners can obtain lucrative tax credits using these people, but the deadlines and documents necessary to claim these credits can be complex. Normally, your payroll company would be available to help with this credit.
- Fiscal Energy Efficiency Credits-If your business invests in energy savings equipment or makes improvements of ecological buildings, you can qualify for federal tax incentives through the tax tax credit.
- 45E Fiscal credits—The government will grant you tax credits to begin retirement plans and even give your employees coincidences. In practice, we see that almost all companies lose these tax credits, since they are relatively new and are not well publicized.
State tax credits can also save thousands of dollars in addition to federal tax credits, so it is better to work with their Fiscal Strategies and CPA To identify these credits.
4. Optimize retirement planning
Retirement accounts are often overlooked in fiscal planning, but they are one of the most effective ways to reduce taxable income while creating wealth.
As owner of a small business, it has access to better retirement savings options than traditional employees. The majority of business owners do not realize how much they can save for retirement, either prior to tax or subsequent tax (Roth) and leave short and long -term tax savings on the table.
The correct plan depends on its income level, commercial structure and if you have employees.
These are some of the best retirement plans with tax advantages:
- Only 401 (K)—Inal for independent people without employees. The contribution limits can reach $ 69,000 in 2025, significantly reducing the taxable income.
- SEP IRA—Take counts the contributions of up to 25% of the compensation or $ 69,000, which is lower. Ideal for high -level independent people.
- Simple anger—The solid option for companies with employees, which offers growth with taxes with lower administrative cost.
- Defined Benefits Plans—This to high -income business owners who seek to contribute six figures per year while maximizing tax savings. In fact, some high -profit business owners use these accounts to deduce $ 200 at $ 300K per year.
As W2 employees hire, greater complexity comes into play and most business owners end with a Safe Harbor 401K plan or a simple anger.
5. Work proactively with a fiscal strategist throughout the year
The greatest tax savings come from proactive planning, not last minute presentations. If you only talk to your CPA once a year, you lack great opportunities. Q1 and Q2 are ideal times to actively plan the tax of your current year and not worry about the taxes of the previous year.
To properly plan throughout the year, you need the following as a baseline:
- Accounting and accounts precise. Without this, there is nothing to plan.
- Projections or forecasts for your next 12 months
- Ability to forecast states where your business will be operating to ensure that all state tax credits can be investigated.
- Detailed thoughts about its commercial and personal financial objectives.
- Conversations throughout the year with their tax and accounting equipment. Ask them if they offer a fiscal strategy against tax preparation.
Take the next steps to reduce your taxes
If tax reduction in 2025 is taken seriously, it needs a strategy that goes beyond basic deductions.
Choosing the correct commercial structure, maximizing deductions, improving accounting processes, taking advantage of tax credits, optimizing retirement plans and working with a fiscal strategist can lead to significant savings. If you take these tax savings and invest at 7%, your money doubles after a decade. Why continue paying your taxes for the construction of your financial future?
The worst thing can do is wait until the tax season to solve everything. The best time to start planning is now.
This story It was produced by Ramp and reviewed and distributed by Stacker.