Turn Tax Stress Into Savings: 6 Strategies for Small Businesses

Submitted by JMB Financial Managers on December 18th, 2024

Did the 2023 tax season leave you feeling down? For small business owners who filed in October, the sting of their annual income tax return hasn’t worn off yet. Now is the perfect time to regroup and prepare a strategy for the 2024 tax year. In this article we’re going to discuss six ways business owners can maximize tax deductions, reduce taxable income, and start lowering their taxes now:

Defer Expenses or Accelerate Income (based on profit expectations)
Start a Company-Sponsored Retirement Plan
Provide New or Additional Fringe Benefits to Employees
Evaluate Your Business Entity Structure
Implement the Pass-Through Entity Tax
Maximize your QBI Deduction

Defer Expenses Into 2025 or Accelerate Income In 2024

If YOUR profit is projected to be less than usual this year, consider deferring expenses and accelerating some income, when possible. This strategy is possible at the end of each business year (typically December 31), when income can either be accelerated and realized in the current year (perhaps by seeking payment for outstanding invoices) or by deferring expenses into the following year (for instance, paying a utility bill on the due date in the future rather than immediately when the bill is issued).

The inverse of this strategy is also a viable option. In years when profit is expected to be higher than normal, consider deferring revenue into the following business year. Perhaps a new client engagement can be pushed out to the following year or encouraging clients to not pre-pay outstanding invoices. Large annual expenses can be accelerated, or paid as soon as possible.

Start A Company-Sponsored Retirement Plan

The implementation of a company-sponsored retirement plan has many tax benefits. Yet, among small businesses with under 50 employees, only 63% offer a retirement plan.

One of the basic benefits of setting up a retirement plan includes making employer-paid contributions that can be deducted for income-tax purposes. In addition, earnings on the plan’s investment accumulate tax deferred.

There is a federal tax credit for employers who establish a company retirement plan for the first time.

When considering a company-sponsored retirement plan you have quite a few options available to you including:

Savings Incentive Match Plan for Employees (SIMPLEs)
Simplified Employee Pensions (SEPs)
Profit Sharing plans (PSPs)
Pension plans (DBPs)
401(k) plans

Each plan has its own set of benefits and features in addition to the contributions. Each comes with set-up deadlines. For more information on this opportunity, reach out and schedule a complimentary consultation to discuss your business situation and how a retirement plan could reduce your income taxes immediately.

Offer New or Additional Employee Benefits

Employment tax costs rise as your company grows. As an employer, you can mitigate these costs by paying for certain fringe benefits. Some of the fringe benefits you might consider offering to your employees are:

Medical Insurance (including dependents)
Health Savings Accounts (HSAs)
Long-term Care Insurance (LTCI)
Disability Insurance
Commuting and Parking Stipend
Education Allowance

There are a number of additional employee benefits you could also consider. To find the best fit for your business and tax situation, review the Employer's Tax Guide to Fringe Benefits from the Internal Revenue Service.

Choosing the Business Structure That's Right for You

The business structure you choose to operate under can have a significant impact on your tax outlook. For instance, those operating as a sole proprietorship or in a partnership may experience higher taxes than those operating as a Limited Liability Company (LLC) or an S Corporation. On the other hand, forming a C corporation offers the potential advantage of paying dividends to the owner, which are taxed at a lower rate than wages and profits often are.

Each type of business structure comes with its own set of tax benefits; we suggest getting assistance from an attorney and your CPA when choosing the best legal entity for your business. For more information on restructuring your business, and the tax benefits associated with different business structures, see our collection of articles on incorporating:

Maximize Your “Trump Tax Cut”

Prior to 2018, the net taxable income from pass-through entities was simply passed through to owners. It was then taxed at the owners’ individual income tax rates. In other words, they did not receive any special tax treatment applied to the pass-through income received by business owners.

However, for tax years through 2025, the Tax Cut and Jobs Act (i.e., Trump Tax Cut) established a new deduction for an individual business owner’s qualified business income (QBI). The deduction generally equals 20% of QBI, subject to certain restrictions. More simply, 20% of the profits that are passed through to the owners of sole proprietorships, general partnerships, limited liability companies, and S corporations are free from federal income taxes. (Not all states recognize this deduction, so it may not lower your state taxes.)

The rules for receiving the deduction can be complex, but it is well worth your time to discuss it with your tax professional, especially if you own a service business.

Take Advantage of the Pass-Through Entity Tax

The original 1913 federal tax code allowed taxpayers to deduct state, local, and property taxes paid from their taxable income on the federal tax return. Since state and local taxes are mandatory payments, the state and local tax (SALT) deduction prevented double taxation.

Then, in 2017, the Tax Cuts and Jobs Act came along and limited the SALT deduction to $10,000 per year. This has been detrimental for taxpayers in heavily taxed states such as California, Hawaii, New Jersey, Oregon, and New York.

In November 2020, the Internal Revenue Service (IRS) issued a notice (Notice 2020-75) clarifying that certain pass-through entities (like LLCs and S corporations), were not subject to the SALT deduction cap in response to a petition from the state of California.

This IRS ruling meant that the $10,000 cap only applies to state and local taxes paid by individual taxpayers and not those paid by pass-through business entities. (i.e. S Corporations, LLCs, etc.) This ruling means that certain business owners may now have their company pay their state income taxes on their behalf, legally circumventing the $10,000 SALT deduction limit.

The net result: business owners can pay fewer federal taxes.

Change Your Tax Outlook Today

It’s not too late to adjust your tax strategy and reduce your personal taxes for 2024 (and beyond). If you find yourself in need of assistance with crafting a personalized tax strategy, schedule a complimentary consultation with JMB Financial Managers, to discuss how you can implement new strategies, take advantage of the tax code, and reduce your tax liability.

About the Author

Jack Brkich III certified financial planner and president of JMB Financial Managers Santa Ana, California Jack Brkich III, is the president and founder of JMB Financial Managers. A CERTIFIED FINANCIAL PLANNER^TM, Jack is a trusted advisor and resource for business owners, individuals, and families. His advice about wealth creation and preservation techniques have appeared in publications including The Los Angeles Times, NASDAQ, Investopedia, and The Wall Street Journal. To learn more visit https://www.jmbfinmgrs.com/.

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