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BetterWealth
January 3, 2026
Running a small business is hard enough without a surprise tax bill. These tax planning tips for small business owners are designed to help you keep more of what you earn, avoid missed deductions, and feel more in control at filing time.
At BetterWealth, we focus on simple, intentional planning that reduces stress and improves cash flow. We also get questions about long-term protection tools, including senior whole life insurance, when owners want more stability alongside their tax strategy.
In this guide, you’ll learn how to organize expenses, choose the right structure, plan quarterly payments, and use retirement accounts and credits more strategically. The goal is a clear, repeatable approach you can use all year, not just in April.
Knowing the taxes you must pay and when to pay them is key to avoiding penalties. You need to understand which taxes apply to your business, meet all IRS deadlines, and handle state and local tax rules properly.
This helps you keep your business on track and avoid surprises. Your business may owe several types of taxes, and the most common are:
What you owe depends on your business type and location. Keeping accurate records will help you calculate these properly.
The IRS sets clear deadlines you must follow:
Missing deadlines can lead to penalties or interest. Mark your calendar and set reminders.
Use IRS resources or a tax professional to stay on top. States and cities have their own taxes that vary widely:
Many small business owners overlook these taxes, which can cause issues. Stay informed about rules in every state where you do business to avoid surprises.
Picking the right business structure affects how much tax you pay, your personal liability, and how your business operates. Each choice has pros and cons that can impact your tax strategy and financial growth.
A sole proprietorship is the simplest structure. You report business income on your personal tax return, which means no separate business taxes.
But this also means you’re personally responsible for any debts or legal issues. An LLC separates your personal assets from your business liabilities and offers protection against lawsuits and debts.
For tax purposes, an LLC can act like a sole proprietorship or choose to be taxed as a corporation. This flexibility can help you manage taxes better.
Choosing between these depends on how much risk you’re willing to take and your comfort with paperwork. An LLC usually costs more to set up, but provides the safety that sole proprietorships don’t.
S Corporations let profits pass directly to your personal tax return, avoiding double taxation. You can also pay yourself a salary and take dividends, which can lower self-employment taxes.
But they have limits on ownership and require strict rules on salaries and distributions. C Corporations pay corporate tax first, then shareholders pay tax on dividends, which is double taxation.
However, C Corps allow easier access to outside investors and more benefits, like employee stock options. Your choice affects your tax rates, paperwork, and how you pay yourself.
If your business plans to grow and attract investors, a C Corp might make sense. For smaller businesses focused on tax savings, an S Corp is usually better.
Your business structure changes how you plan taxes every year. Sole proprietors pay self-employment taxes on all profits.
LLCs can reduce taxes if they choose S Corp status to split salary and dividends. Corporations might face higher tax rates but gain access to benefits like health plans or retirement accounts with tax advantages.
Choosing the right structure early saves money and avoids surprises. It’s worth thinking through, even if you’re just starting out.
To reduce your taxable income, it’s important to know which expenses qualify as deductions and how to manage them properly. This includes understanding common expenses, using your home office, and keeping clear records.
Doing this well can save you money and help your business grow. You can deduct many costs that are necessary for your business to run.
Some typical examples are office supplies, equipment, business travel, and marketing expenses. Key deductible expensesinclude:
Not all personal costs are deductible. Only expenses directly related to your business count. If you hire an accountant or tax professional, those fees are also deductible. If you work from home, you may qualify for a home office deduction, but it must be used regularly and exclusively for business.
This means part of your home is your main office or a separate space just for work. You can deduct a portion of your mortgage or rent, utilities, insurance, and maintenance costs based on the size of your office area compared to your whole home.
Two methods to calculate this:
Method
How It Works
Simplified Method
$5 per square foot up to 300 sq ft
Regular Method
Percentage of actual expenses
Choose the method that offers the largest tax benefit. Keep in mind, if you don’t meet the exclusive use rule, this deduction won’t apply.
Accurate records are essential for maximizing deductions. Use a dedicated business account or credit card to separate your expenses from personal spending.
Keep receipts, invoices, and bank statements in organized files. Using apps or accounting software can simplify this process by tracking expenses automatically.
Good documentation proves your deductions are valid if you’re ever audited. Note the purpose of each expense, along with date and amount.
By staying organized, you can avoid missed deductions and be better prepared during tax season. It’s not the most exciting part of running a business, but it pays off.
Tax credits can lower your tax bill dollar for dollar, making them one of the best ways to save money. Some apply broadly, while others fit certain industries.
Knowing how to find and claim these credits helps you keep more cash in your business each year. There are several federal credits that benefit most small business owners.
The Employee Retention Credit helps if you've kept employees through tough times. The Small Business Health Care Tax Credit reduces costs if you offer health insurance.
The Work Opportunity Tax Credit rewards you for hiring people from specific groups, like veterans or those receiving public assistance. These credits reduce your taxes directly, rather than just lowering the income amount you pay tax on.
That makes them especially valuable when you want to reinvest profits back into your business. Certain industries get extra help through specialized credits.
For example, renewable energy businesses might claim the Investment Tax Credit for solar or wind energy equipment. If you’re in manufacturing, you might qualify for credits related to research and development or energy efficiency upgrades.
These credits can be niche but worthwhile if your business fits the profile. Always check for new or updated opportunities, as Congress often adjusts incentives to support growth in key sectors.
Claiming tax credits starts with documentation. Keep clear records of hiring dates, expenses, and eligibility criteria.
Most credits require filling out specific IRS forms, like Form 3800 for general business credits or separate forms for things like health care. You usually report credits on your tax return, so it helps to work with a tax professional who understands your industry.
Planning for your retirement can also help reduce your taxes now. Using the right retirement accounts lets you save money on current taxes and grow your savings tax-deferred.
You keep control over how much you contribute and benefit from tax breaks that fit your business. A SEP IRA is a simple retirement plan designed for small business owners like you.
You can contribute up to 25% of your net earnings, with a max limit set by the IRS ($66,000 for 2024). Contributions are tax-deductible, meaning they lower your taxable income.
You manage the investments, and earnings grow tax-deferred until withdrawal. This plan is easy to set up and has low administrative costs.
You can also decide how much to contribute each year, which gives flexibility during slow or busy business times. Not a bad way to save for the future, right?
If you’re a business owner with no employees except maybe your spouse, a Solo 401(k) can be a solid choice. This plan lets you contribute both as the employee and the employer, which is pretty neat.
For 2024, you can put in up to $23,000 from your salary, or $30,500 if you’re over 50. On top of that, you can add up to 25% of your business profits on the employer side.
Altogether, you could stash away as much as $66,000, or $73,500 if you’re past 50. That’s a lot higher than what you’d get with a SEP IRA, and you can even borrow against your savings if you need to. Both parts of your contribution help reduce your taxable income, which is always a plus.
Besides Solo 401(k)s, you’ve got other tax-friendly options like SIMPLE IRAs or traditional IRAs. These give you some tax relief, though the contribution limits are usually lower.
Picking the right plan really comes down to your business size, income, and what you want long-term. If you’ve got a few employees and want something straightforward, SIMPLE IRAs might fit the bill.
Just make sure whatever you choose lines up with your business’s cash flow and your retirement timeline. There’s no one-size-fits-all, and sometimes it takes a bit of trial and error to land on the right fit for your goals.
Paying your quarterly estimated taxes on time (and in the right amounts) helps you dodge big year-end tax bills and those annoying penalties. Staying organized and tracking what you owe makes tax planning less of a headache.
Your quarterly estimated taxes come from your best guess at yearly income, deductions, and credits. Usually, last year’s tax return is a good place to start, but don’t forget to adjust for any changes in your business or life.
The IRS keeps things simple with this breakdown:
Quarter
Payment Due Date
Amount Due
1st
April 15
25% of estimated tax
2nd
June 15
25% of estimated tax
3rd
September 15
25% of estimated tax
4th
January 15 (next year)
25% of estimated tax
If your income jumps or drops a lot, go back and recalculate so you’re not overpaying or coming up short.
The IRS isn’t shy about penalties if you underpay your taxes throughout the year. To stay safe, pay at least 90% of this year’s tax or 100% of last year’s, whichever is lower.
If your adjusted gross income tops $150,000, the safe harbor bumps up to 110% of last year’s tax. Don’t forget: pay on time. Even a short delay can mean extra fees, so electronic payments are your friend here.
Set reminders on your phone or calendar for payment deadlines. Seriously, it’s easy to forget. Keep all your income and expense records in one spot, digital or old-school, whatever works for you.
Accounting software or apps can track your estimated tax math, and it’s much easier to update if your numbers change mid-year. Staying organized really does cut down on stress. It’s not glamorous, but it pays off when tax time rolls around.
Good records make tracking income, expenses, and taxes way less painful. They also make filing smoother and help you steer clear of audits.
The basics? Pick the right accounting method, use digital tools, and know how long to keep your paperwork.
First up, you’ll need to choose between cash and accrual accounting. Cash accounting means you record money when it actually lands in your account or leaves it. It’s simple and works well if your business is small or mostly deals in cash.
Accrual accounting tracks income and expenses when they happen, not when the money moves. This gives you a clearer picture, though it’s a bit more complicated.
The IRS lets you pick either, but once you choose, you’re supposed to stick with it unless they say otherwise. Go with what matches how you think about your money and keeps things easy to follow.
Software can save you tons of time and keep your records tidy. Look for tools that can:
Good bookkeeping apps help you avoid mistakes and let you see your cash flow at a glance. Some even have mobile versions, so you can log expenses wherever you are.
Don’t forget to back up your digital files regularly. Losing your records because of a computer crash is the worst.
Hang onto all your tax-related docs for at least three to seven years. That means income records, receipts, bank statements, and tax returns. The IRS can audit returns filed during that window.
Stuff tied to property or depreciation? Keep those for seven years or more. Create a filing system that splits tax docs by year. Label everything clearly so you’re not digging through piles at tax time. Trust me, this saves a ton of stress if you ever get audited.
Taking charge of your income and expenses before the year wraps up can seriously lower your tax bill. Timing things right, grabbing last-minute deductions, and prepping your financials can make a real difference.
Sometimes you can shift when you report income or pay expenses to save on taxes. If you think you’ll be in a lower tax bracket next year, maybe hold off on sending invoices until January.
On the flip side, you can pay bills or buy supplies before December 31 to bump up your deductions for this year. If you use cash accounting, these timing tricks hit your taxable income directly.
It’s a bit of a balancing act, lowering your tax bill now without making things harder down the road.
Look for expenses you can still claim before the year ends—donations, business supplies, repairs. Just make sure you’ve got the receipts to back them up.
People often forget about donations, but those can really lower your taxable income. Also, don’t skip reviewing home office or vehicle expenses if you use them for work.
Some folks use life insurance policies like overfunded whole life for tax benefits they might not have realized were available. There are more options out there than most people realize. Act fast, year-end comes up sooner than you think, and you don’t want to miss out.
Accurate financial statements matter for tax planning. Before the year closes, go over your profit and loss statement, balance sheet, and cash flow report.
These show your income, expenses, and overall business health. They’re also handy for spotting mistakes or unexpected changes.
Well-prepped statements make tax filing smoother and reveal planning opportunities, like shifting income or expenses. They’re also super helpful when you meet with your tax advisor. Keep these docs up to date so you can make smart choices before the year’s up.
Having the right expert in your corner can save you a lot of time (and money) on your small business taxes. Knowing when to bring in an accountant and what to ask a tax advisor can help you make smarter decisions for your business’s future and financial health.
If your business income is growing, taxes are getting complicated, or you’re just feeling lost with tax rules, it’s probably time to hire an accountant. Notice mistakes on your returns or miss deadlines? That’s a red flag.
Accountants can handle payroll taxes, deductions, and credits you might miss. When your profits become steady, or you want to plan for retirement or estate taxes, an accountant can guide you there, too.
Hiring early isn’t just about filing taxes. It’s about planning ahead. Honestly, a good accountant often pays for themselves by finding ways to lower your tax bill.
Before you hire a tax advisor, ask about their experience with small businesses like yours. Find out what tax strategies they like and how they keep up with new tax laws.
Make sure they get the deductions that matter in your industry. Ask if they’re available year-round or only during tax season. Fees and what’s included should be clear upfront.
Communication style matters; a good advisor explains things in plain English, not jargon. If you use life insurance or have retirement plans, check if they’re familiar with those. It’s surprising how often those details make a big difference in your tax plan.
Running a small business means tax mistakes can cost you, sometimes big. Paying attention to how you classify workers and keeping up with state tax rules is crucial for staying compliant and protecting your bottom line.
Mixing up employees and independent contractors is a classic mistake. If you get it wrong, expect back taxes, penalties, and interest.
Employees need taxes withheld, and you’re responsible for Social Security, Medicare, and unemployment taxes. Contractors handle their own tax stuff. To figure it out, look at how much you control their work and whether they bring their own tools.
If someone acts like an employee, the IRS might reclassify them. Keep your agreements clear and track job responsibilities closely. It’s a pain, but it protects your business and cash flow.
State tax laws can be all over the place and change quickly. Missing state sales taxes, income taxes, or registration rules can lead to fines and payment demands.
You need to register your business in every state where you sell goods or services. Also, check if you have to collect and send in sales tax on your products.
Some states want quarterly filings, so stay on top of deadlines to avoid penalties. Keeping this info organized makes tax season less stressful and helps you avoid nasty surprises.
When you’re thinking about taxes, don’t just focus on this year’s numbers. Looking ahead and planning over the long haul can help you keep more of your money and grow your wealth in a way that actually feels steady.
One approach worth considering is using overfunded whole life insurance. These policies build up cash value you can tap into later. You get tax-free growth, plus a bit of protection along the way.
It’s also a good idea to track your business expenses closely. Hang onto those receipts and jot down any equipment or travel costs. Over time, these deductions can really add up and lower what you owe.
Don’t forget about tax-advantaged accounts like IRAs or 401(k)s. They’re not just for retirement. They can cut down your taxable income right now.
Honestly, it’s smart to review your tax approach every so often. Rules change, and your business isn’t standing still either. Checking in regularly can help you catch things before they become problems or missed chances.
Here’s a quick checklist to keep handy:
Staying ahead of small business taxes comes down to planning, not scrambling. When you understand deductions, credits, structures, and timing, you reduce surprises and keep more cash working for you.
At BetterWealth, the focus is on helping business owners move from reactive tax decisions to intentional strategies that support growth, protection, and long-term stability, including tools like senior whole life insurance when appropriate.
If you want clarity around your tax strategy and how it fits into your bigger financial picture, schedule a free Clarity Call. A focused conversation now can save you money, stress, and missed opportunities later.
Start by deducting business expenses like office supplies, travel, and utilities. Setting up a retirement plan or claiming a home office deduction can also make a difference. If you’re tracking expenses closely, you’re less likely to miss out on valuable write-offs.
With an LLC, you get to pick how you’re taxed: as a sole proprietor, partnership, or corporation. That choice really shapes your tax bill. If you elect S-corp status, you could pay yourself a reasonable salary and take the rest as profits, which might lower your self-employment taxes.
Buying equipment or property lets you claim deductions through depreciation. Opening retirement accounts for yourself or your team can also lower your taxable income. Some whole life insurance strategies can grow cash value and offer tax perks, if that’s your thing.
Think beyond the obvious. Health insurance premiums, courses to sharpen your skills, and even your business-use cell phone bills might be deductible. Meals and entertainment tied to business? You can usually write off part of those, too.
If you own a business, you pay self-employment taxes for Social Security and Medicare—employees don’t deal with that directly. You’re also responsible for making estimated tax payments every quarter, instead of watching taxes come out of a paycheck.
Plenty of blogs out there break down tax planning for small business owners in plain English. Some even dive into how retirement planning and things like whole life insurance can play into your taxes.
If you’re looking for practical, actionable tips, it’s worth browsing a few different sites to see whose advice actually makes sense for your situation. Sometimes the best insights come from those who’ve been in the trenches themselves.
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