Small Business Tax Planning Tips for 2025

It’s that time of the year when you need to prioritize tax planning for your small business to tackle tax liability and make informed year-end tax decisions. As a small business owner, you may be asking yourself how do business owners pay less taxes while ensuring legal compliance. With the current state of taxes being influenced by ongoing legislative changes and economic factors, it’s important to know what your options are and how to implement them effectively. 

Here are some thoughtful tax strategies that can make a significant difference in your financial health and contribute to a successful business. In this blog, we’ll share practical small business tax tips, important dates and deadlines, automation tools, and how to avoid tax season mistakes to help you manage your taxes effectively, allowing you to keep more of your hard-earned money. Remember, Tax Day 2025 is just around the corner, so planning ahead is crucial!

Feel free to skip to the section you need the most using the Table of contents below.

Small Business Tax Planning 

This section is a comprehensive guide on tax tips and strategies for small business owners. Use the strategies and tools mentioned for advanced tax planning to reduce your tax bill. 

Select the Right Business Structure to Save on Taxes

Tax planning for small businesses starts with the business structure. Your business structure decides how you’ll be taxed and how profits are distributed. Here’s a quick overview of the most common structures: Sole Proprietorship, Partnership, LLC, and S Corporation—each with its own unique benefits. As you prepare for tax season 2025, understanding your business structure is crucial for optimizing your tax strategy.

Sole Proprietorship

As a sole proprietor, your business income is reported on your personal tax return using Schedule C (Form 1040). You pay taxes at ordinary income tax rates, which in 2023 range from 10% to 37% based on your income level. Your tax return is typically due on April 15. This structure is simple and easy to set up, allowing you to focus on growing your business without the burden of complex regulations.

Partnership

In a partnership, profits pass through to the owners, who report them on their personal returns. Partnerships file Form 1065, and the tax return is due on March 15. However, partners usually pay taxes on their share of profits by the April deadline. This structure fosters collaboration and shared responsibility, making it easier to pool resources and expertise while avoiding corporate business taxes.

LLC

An LLC can be taxed as a sole proprietorship (using Schedule C on Form 1040) or as a C Corporation (filing Form 1120). The tax filing is due on April 15 if treated as a sole proprietorship. If it opts for C Corporation status, it faces double taxation—once at the corporate level and again on dividends. An LLC offers flexibility in management and tax treatment, allowing you to choose the option that best fits your financial situation while protecting your personal assets.

S Corporation

An S Corporation is a pass-through entity, meaning profits are taxed at the individual level. It must file its annual return using Form 1120-S by March 15. This structure allows you to avoid double taxation while still attracting outside investors, allowing you to grow your business without the added tax burden. 

Opt for Automation

One of the most time-consuming things about small business tax planning is manually keeping the financial data. What if you had a robust accounting platform like QuickBooks or Xero and a bulk import application like SaasAnt Transactions? It will keep your data error-free and up-to-date data for tax calculations. SaasAnt Transactions has comprehensive features to maintain financial integrity with bulk export, edit and delete features. 

If you want to sync payments from your business to QuickBooks or Xero directly, you can choose PayTraQer for instant data sync and error-free reconciliation. 

Integration with the right solution for your business to let these applications run in the background, taking care of your sensitive data. At the same time, you focus on strategizing for your business growth. 

Maximize Your Tax Deductions 

According to mycpacouch.com, 90% of business owners overpay their taxes because they fail to write off expenses they already pay for. Here are some key deductions to consider for your small business tax planning.

Common Deductible Expenses

• Home Office Deductions: If you work from home, you can deduct a portion of your mortgage or rent, property taxes, and utilities. The IRS allows you to deduct $5 per square foot of your home office, up to 300 square feet, leading to a maximum deduction of $1,500.

• Internet and Phone Expenses: You can deduct the business portion of your bills. If you use your phone for business 50% of the time, you can deduct half of your monthly bill.

• Travel and Entertainment: Business travel expenses, including airfare, lodging, and meals (50% deductible), can be claimed. According to the IRS, the standard meal deduction is $66 per day for travel in 2023.

• Education Expenses: Courses and training related to your business can be deducted, helping you stay competitive.

• Professional Fees: Fees paid to accountants, consultants, or legal advisors are fully deductible.

Lesser-Known Deductions to Consider

In addition to common deductions, there are lesser-known deductions that can provide significant savings:

• Carryover Deductions: If your business expenses exceed your income, you can carry those losses to future tax years, potentially reducing your Adjusted Gross Income (AGI) in subsequent years.

• Automobile Tax Deductions: If you use your vehicle for business, you can choose between the standard mileage rate (65.5 cents per mile in 2023) or actual expenses, including gas and maintenance.

• Charitable Donations: Donations made by your business to qualified charities can be deducted, which not only helps your community but also reduces your taxable income.

Lesser-Known Deductions to Consider

In addition to common deductions, there are lesser-known small business tax planning tips that can provide significant savings:

• Carryover Deductions: If your business expenses exceed your income, you can carry over those losses to future tax years, potentially reducing your Adjusted Gross Income (AGI) in subsequent years.

• Automobile Tax Deductions: If you use your vehicle for business, you can choose between the standard mileage rate (65.5 cents per mile in 2023) or actual expenses, including gas and maintenance.

Charitable Donations: Donations made by your business to qualified charities can be deducted, which not only helps your community but also reduces your taxable income.

Collect Accounting Data

The accuracy of financial data plays a big role in small business tax planning. The biggest challenge is centralizing all your data and maintaining its integrity with minimal effort. For example, SaasAnt Transactions can help you easily bulk import your financial data from XlS, XLSX, CSV, IIF, or PDF. SaasAnt Transactions makes your mechanical, time-consuming tasks into automated, effortless processes. 

If you are an eCommerce business owner, you may not have time to keep track of your sales data. PayTraQer syncs your sales and transaction data into QuickBooks and Xero automatically. The software allows you to link your sales channel or payment platform with your accounting and banking records, removing the need for manual data entry.

Leverage Available Tax Credits

Tax credits let you deduct the income tax you owe by the value of the credit, effectively decreasing your tax liability dollar-for-dollar.  Here are some tax credits and tax tips for small businesses that can positively impact your small business tax filing:

Work Opportunity Tax Credit (WOTC): This tax credit rewards businesses for hiring individuals from certain target groups, such as veterans or long-term unemployed individuals. The credit can be as much as $2,400 per qualified employee and up to $9,600 for hiring veterans, according to the IRS.  To claim this credit, you must complete Form 8850 and submit it to your state workforce agency within 28 days of the employee's start date.

Small Business Health Care Tax Credit: If you provide health insurance to your employees, you may qualify for a tax credit of up to 50% of premiums paid, which can be especially beneficial for small businesses with fewer than 25 full-time employees. To qualify, you must have fewer than 30 full-time employees and pay an average annual wage of less than $56,000 (as of 2023). You can claim this credit by filing Form 8941 with your tax return.

Disabled Access Credit: This credit helps small businesses cover the costs of making their facilities accessible to individuals with disabilities, offering a credit of up to $5,000. To claim this credit, you must have incurred expenses for making your business accessible. The credit is available for businesses with 30 or fewer full-time employees. 

Charitable Contribution Credit: Donations to qualified charities can also provide tax credits, allowing you to support your community while reducing your taxable income. Ensure that your donations are made to qualified organizations. Keep detailed records of your contributions to substantiate your claims.

Green Energy Tax Credit: As a small business owner, you can benefit from green energy tax credits under the Inflation Reduction Act and IRC Section 48. These credits offer a 30% tax incentive for investing in alternative energy resources like solar and wind. 

Implement Smart Income Strategies

Understanding deferring and accelerating income nuances will help implement effective small business tax strategies. 

Defer or Accelerate Revenue Recognition

One effective strategy in small business tax planning is deferring or accelerating revenue recognition based on your financial situation. For example, if you anticipate being in a lower tax bracket in the following tax year, you might consider deferring your business income until then. 

This is particularly useful if you operate on a cash-based accounting system, where income is recognized when received. Conversely, if you expect your income to rise, you may want to accelerate income by invoicing clients before year-end. 

For instance, if you complete a project in December, sending the invoice before the year ends can help you recognize that income now, potentially benefiting from current tax rates. According to the IRS, small businesses can save significantly by strategically managing their income timing.

The Impact of Income Timing

The timing of your income can greatly influence your tax liability. For accrual-based businesses, income is recognized when earned, regardless of when payment is received. This means if you finish a project in December but don’t get paid until January, you’ll owe taxes on that income for the current year. On the other hand, prepaying expenses can help you reduce taxable income. For example, if you pay for a year’s worth of supplies in December, you can deduct that expense immediately, effectively allowing you to defer expenses to the current year.

Utilize Retirement Plans for Tax Benefits

Types of Retirement Plans Available

As a small business owner, you have several options to contribute to a retirement plan that can benefit both you and your employees. Popular small business tax planning choices include the 401(k), SIMPLE IRA, and SEP-IRA. A 401(k) allows employees to contribute pre-tax income, reducing their taxable income. For 2024, the contribution limit is $23,000, with an additional catch-up contribution of $7,500 for those over 50. A SIMPLE IRA is ideal for businesses with fewer than 100 employees, allowing contributions of up to $15,500 plus a catch-up option. The SEP-IRA is another flexible option, enabling contributions up to $69,000 for 2024, depending on income.

Tax Advantages of Retirement Contributions

Contributing to a retirement savings plan not only helps secure your future but also offers significant tax planning for small businesses advantages. Contributions to a 401(k) or SEP-IRA are tax-deductible, reducing your taxable income for the year. For example, if you contribute $10,000 to your 401(k), your taxable income decreases by that amount, potentially saving you hundreds in payroll taxes. Additionally, small businesses may qualify for a Tax Credit of up to $1,000 for starting a retirement plan, according to the IRS. These tax tips for small business owners can lead to substantial savings while helping you and your employees prepare for retirement.

Consider Gifting Family Members

One of the best small business tax tips is gifting to family members as a smart strategy to manage your tax liability. Under the Tax Cuts and Jobs Act, you can gift up to $18,000 per recipient in 2025 without incurring gift taxes, thanks to the annual gift tax exclusion. This means you can support your children or other family members while lowering your tax burden.

For married couples, this limit doubles to $38,000. If you gift assets that appreciate, you can help loved ones in lower tax brackets avoid higher capital gains taxes. For example, a Charitable Remainder Unitrust (CRUT) can provide income to family members while benefiting a charity later. Remember to file Form 709 for any gifts exceeding the annual exclusion.

Hire Your Family Members

Hiring your family members is a smart move in small business tax planning. It was up to $13,850 in 2023 and $14,000 in 2024 without incurring payroll taxes, which can help you save on costs. This strategy not only allows you to shift income to family members in lower tax brackets but also helps them build Social Security benefits. Additionally, contributions to a ROTH IRA can be made from their earnings, providing long-term savings. Just remember to follow proper payroll procedures to comply with Federal Unemployment Taxes. This approach is a valuable tactic in your small business tax planning.

Plan for Estimated Taxes

The IRS requires you to pay taxes on income throughout the year, not just at tax time. You must make quarterly estimated payments if you expect to owe $1,000 or more in taxes. For 2023, the tax rates range from 10% to 37% based on your income level. Missing these payments can lead to penalties, so it’s essential to calculate your expected tax liability accurately. According to the IRS, many small business owners underestimate their tax obligations, which can lead to financial strain. Incorporating this into your small business tax planning can help you avoid surprises.

Consider setting aside a percentage of your income each month to manage your estimated taxes effectively. A common recommendation is to save 25% to 30% of your earnings for taxes. This way, you’ll have enough to cover your quarterly payments without feeling the pinch. Keep detailed records of your income and expenses to make accurate calculations. Using accounting software like QuickBooks or Xero can simplify this process. These small business tax tips can significantly impact your financial planning.

How to Tax Season Avoid Mistakes 

Most tax season mistakes stem from inadequate record-keeping, which is crucial for small business owners managing online sales. However, handling these records manually can be quite labor-intensive. 

This challenge can be easily addressed with Saasant Transactions and PayTraQer. Saasant Transactions simplifies record-keeping by allowing you to import, export, edit, and delete bulk data, ensuring accuracy without the hassle. Meanwhile, PayTraQer organizes your transactions, covering sales, fees, taxes, and more.

Using these tools ensures that your business’s reporting is precise and ready for tax season, a key aspect of effective small business tax planning.

Consult with Tax Professionals

As a small business owner, consider seeking professional help if your financial situation becomes complex. For example, if you’ve recently expanded your business or taken on new employees, navigating payroll taxes and deductions can be overwhelming. If you’re unsure about tax credits or how to handle a sudden increase in revenue, consulting a tax professional can provide clarity and peace of mind. This is an essential aspect of small business tax planning, as investing in expert advice can save you from costly mistakes and help you focus on what you do best—growing your business.

2025 Tax Deadlines

Get Ready for Tax Season with Automation Tools

Hope these small business tax planning strategies have helped you understand how you can minimize your tax liability. Try implementing automation applications like SaasAnt Transactions and PayTraQer for data accuracy and time-saving. This will help you invest in what matters most. By embracing these technologies, you can focus more on growing your business and less on the complexities of tax compliance. Remember, every moment saved is an opportunity to invest in your passion and serve your customers better. Don’t hesitate to explore these small business tax tips and see how they can transform your tax season experience.

FAQs

How much money does a small business need to make to file taxes?

 A small business must file taxes if its net earnings from self-employment are $400 or more. This requirement applies regardless of the business structure, so it's important to keep track of your income to ensure compliance. If your business is structured as a corporation, there is no minimum income threshold; all earnings are taxable. For pass-through entities like sole proprietorships or partnerships, income is reported on personal tax returns, and the tax-free threshold is based on individual standard deductions.

How to pay the least amount of taxes as a small business owner?

To minimize taxes as a small business owner, consider strategies like maximizing deductions for business expenses, contributing to retirement accounts, and utilizing tax credits. Additionally, employing family members and deferring income can further reduce your taxable income.

How much tax should I set aside for my small business?

As a small business owner, it's generally recommended to set aside 25-30% of your net income for taxes. This includes federal, state, and self-employment taxes. Adjust this percentage based on your specific tax situation, and consult a CPA for personalized advice to ensure you're adequately prepared for tax payments.

How to pay the least amount of taxes as a small business owner?

• Choose the proper business structure.

• Maximize deductions (office supplies, travel, meals).

• Utilize tax credits (Small Business Health Care, R&D).

• Contribute to retirement plans (SEP IRA, Solo 401(k)).

• Keep detailed records.

• Hire a tax professional.