Growing Your Business

3 Little-Known Ways For Small Business Owners to Save on Taxes

by
Bob Mason
on
12/15/2022
3 Little-Known Ways For Small Business Owners to Save on Taxes

Whether you’ve dreamed of owning a small business for your entire life or you fell into entrepreneurship by happenstance as an adult, operating a company of any size can have its fair share of challenges.

Many small business owners find that tax season is among the most difficult times of year, especially if they don’t have a background in accounting. Fortunately, there are numerous tips and tricks that can make it easier to prepare for filing your business taxes year after year. 

Here, we take a look at three little-known for small business owners to potentially save hundreds, or even thousands, of dollars when tax time rolls around. 

1. Deduct Section 179 Property 

Credit: Halfpoint Images/Getty Images

Small businesses are legally allowed to deduct the full amount of certain property purchases as expenses for the tax year the business began using them. Referred to as “section 179 property.” the provision can include up to $1,080,000 [this figure is subject to change annually as the tax code is revised] of eligible business property for the 2022 tax year.

Qualifying properties can include:

  • Property used in manufacturing, transportation, and production, such as warehouses
  • Any type of facility used for research and development
  • Buildings used to hold livestock, agricultural, or horticultural products, such as barns or grain silos

Excluded properties include:

  • Undeveloped land
  • Investment property
  • Land located outside of U.S. borders
  • Structures intended to provide lodging, such as hotels

2. Carry the health credit forward

Credit: Thianchai Sitthikongsak/Getty Images

Some small business owners are unaware of the fact that the federal health tax credit is offered on a sliding scale. Small businesses with fewer than 10 full-time-equivalent employees with average wages under $25,000 per worker are eligible for the largest benefit. 

IRS Form 8941 will help you calculate your eligibility. If your business did not owe taxes for a specific year, you may qualify to carry the credit forward. This can lower your tax liability. 

3. Classify your business properly

Credit: Halfpoint Images/Getty Images

Choosing the right type of business entity for your company can be one of the toughest parts of starting a small business. If you don’t classify your business correctly, you could find yourself overpaying taxes. 

There are a number of business entity structures in the United States. These include C Corporations, S Corporations, Limited Liability Partnerships, Limited Liability Companies, Single Member LLCs, and Sole Proprietorships. 

Each structure has its own tax rules and regulations.

For help evaluating your current setup, talk to your tax professional or business advisor. While changing entities can be complex, it is possible. In some cases, the process may be worth it to save tens of thousands of dollars in taxes over the course of your business’s life. 

What is your favorite small business tax tip?

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Bob Mason

Bob Mason

Bob Mason is the founder of Coast Financial Services Inc. servicing both the Santa Cruz, and San Jose areas. Bob Mason is a skilled financial professional who is fully equipped to assist any of your accounting needs. Founding his firm in Santa Cruz, Bob understands the importance of small businesses and how they form the backbone of the area. Coast Financial Services, Inc. has been dedicated to the growth and profitability of businesses in Santa Cruz for 17 years. To learn more about Bob Mason and the rest of his team, visit their website.

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