Tax season initiates panic for many small business owners as they scramble to collect their financial documentation and file the necessary paperwork. It often leads to stress and missed savings opportunities. However, with the right strategy, owners can make changes that streamline their processes and reduce costs.

"Learning tax strategies is great, but knowledge alone doesn't create savings — taking action and structuring your business correctly does," said Mike Jesowshek, a certified public accountant (CPA) and Founder of TaxElm. "The small details, when executed properly, are what add up to big tax savings."

Here are some actionable steps your small business can take to implement effective, money-saving tax strategies.

Make the most of your home office deductions

Home office deductions are one of the most commonly overlooked expenses that can save you lots of money on your tax return. This is partially because there are some common misconceptions about what qualifies as a "home office."

The IRS allows both homeowners and renters to claim a home office deduction, so even if your space is leased, you can claim it on your tax return. The deduction is also available for all types of homes, from a houseboat to a studio apartment (but not a hotel or an Airbnb you're staying in on vacation).

To claim a home office deduction, your space must meet these two requirements:

1. Regular and exclusive use: The space you consider your office must be used exclusively for business purposes. For instance, if you use a guest bedroom as both your office and a place for your in-laws to stay, that deduction would be ineligible.
2. Principal place of business: Your home office must be your primary place of business. That means you don't have another office elsewhere and your home office is used for business purposes only. Management activities refer to things like billing customers, making sales calls, bookkeeping, and setting up appointments.

Check with your accountant to make sure you can take advantage of a home office deduction. It can save you a lot of money on your tax return!

Defer income to reduce your taxable income

Remember, income tax is charged based on the amount of income you made during the previous calendar year. In this case, a successful sales strategy is a double-edged sword: the higher your income, the higher your taxes. If you're hoping to lower your tax burden in April, defer some income until the next calendar year.

There are two ways to defer income depending on which accounting method your business uses:

1. Cash-basis accounting: Delay sending invoices, or extend the due date on the invoice until the new year. Your income tax rate is based on when you actually receive payment, not when you've sent the invoice.
2. Accrual-basis accounting: If your business doesn't charge until after you've fulfilled the delivery of goods and services, delay until next year. Strict guidelines apply when a business is recording deferred income under accrual accounting, though, so it's wise to check with your financial adviser to make sure you're doing it correctly.

[Read more: 14 Commonly Overlooked Small Business Tax Credits]

Be proactive about procurement and depreciation

Equipment is one of the biggest expenses in a small business budget. Writing off new purchases and offloading old equipment can significantly help your tax burden. If you need to purchase a car, laptop, or other equipment, make that purchase before the end of the year. The earlier date of purchase can be declared as a higher expense, or even a full purchase price since the item has less time to depreciate.

Likewise, you may be able to take advantage of business credits for things like solar panels, energy-saving upgrades, or other sustainable investments. Check the IRS list of business tax credits to see if there's anything your business needs that you can claim.

In addition to moving up expensive purchases, now is the time to review depreciation rules. Follow these steps to maximize your expenses and reduce your tax rate in April:

1. First, declare the entire expense in 2025.
2. Use a shorter depreciation timeline.
3. Use an accelerated depreciation method.
4. Reduce the residual value to increase the annual depreciation expense.

Read more about how to apply depreciation in IRS Publication 946.

Maximize contributions to your retirement plan

Adding to a retirement plan is not only an investment in your future, but it's also good for your tax rate. Contributions to a 401(k) are made with before-tax income, meaning your monthly salary decreases each pay period, leading to a lower tax rate.

Individuals can contribute up to $23,500 to a 401(k) in 2025. If your account is set up as an IRA, you can contribute up to $7,000 in 2025.

Business owners can also set up 401(k)s for their employees. Qualified small businesses can claim the cost of setting up and administering each 401(k) plan — up to $5,000 a year based on the number of eligible non-highly compensated employees — for each of the first three years that the plan exists. Plus, it's a great benefit to offer your employees.

Pay down your debt

Lots of small business owners take on debt to finance their growth. A loan won't be taxed in the same way as business income, but you may be taxed on interest payments. Speak to a CPA or accountant who can advise you whether or not you can make your loan as tax efficient as possible.

At the same time, make sure you write off any uncollectible debts you may have accumulated during the year. Uncollectible or bad debts are those that are owed to your business by a customer that you (the business owner) or a creditor has not been able to collect.

The IRS permits you to write off bad debts before the year. Run your accounts receivable aging report to see who hasn't paid. If the results show a customer who is no longer active, then you may be able to strike this person's balance from your total sales figure. This reduces your income, lowering your income tax. The caveat, unfortunately, is if you write off a bad debt and the person pays you later, you must reverse the write-off.

Consider making your business an LLC

Changing the structure of your small business can lead to tax savings, even at a time when top corporate income tax rates are low — sitting at 21%. Small business owners can benefit from making their company a limited liability company (LLC), which is taxed as a sole proprietorship or partnership, depending on the number of members. However, LLCs can also elect to be taxed as S or C corporations.

By default, LLCs are pass-through businesses exempt from paying corporate income tax — except those filing as C corporations, which face double taxation. Instead, LLCs can reap tax-saving benefits, as a company's net income is passed onto the owner's tax return, subject to a personal income tax rate upward of 37%.

However, before making any structural changes to your business, it's best to consult an expert who can conduct a cost-benefit analysis and ensure the right move for your business.

Track your receipts using software

Tracking receipts allows businesses to take advantage of tax deductions; however, businesses should develop an organizational system and ideally use tracking software.

To maximize your savings potential and ensure accurate recordkeeping, create a system to track all of your expense receipts, both digital and physical. Ensure physical receipts are properly labeled — the IRS requires businesses to keep proof of receipts and supporting documents for up to three years — and hold them in a secure location until they can be digitized.

Store all digital receipts in one location, such as a secure folder or drive, and ensure you back them up. Many programs utilize built-in scanners that will input information and file receipts automatically.

"By using a bookkeeping system to maintain detailed records of all business-related expenses such as meals, travel, office supplies, and continuing education classes, … [small business owners] can maximize deductions," noted Tanya Taylor, CPA, MBA, and Founder and CEO of Grow Your Wealth. "This will, in turn, reduce their tax liability, providing them with extra cash, which they can reinvest in their business or put in their retirement plan."

Beyond financial benefits, a systemized bookkeeping service ensures that your business is protected in the event of an audit, allowing you to retrieve evidence required by the IRS.

Pay for health insurance

Self-employed health insurance deductions offer small business owners a valuable tax break, mitigating the financial burden of high insurance costs and reducing overall tax liability. This deduction, available to self-employed individuals who cannot receive health insurance coverage from a spouse but meet all other requirements, allows eligible individuals to deduct some or all of their insurance premiums, including medical, vision, dental, and long-term care, depending on the net profits of the organization offering insurance.

Businesses can also reap tax-saving benefits by creating health savings plans for employees. These plans offer an affordable option for businesses to put away money for their employees' future healthcare needs. These contributions and their growth are tax-free, and so are withdrawals if used for medical expenses.

Take advantage of the qualified business income deduction

Depending on your business's structure, you can claim the qualified business income deduction, also known as the Section 199A deduction. It allows eligible self-employed individuals and small business owners to deduct up to 20% of their business income.

Eligibility depends on the filer's taxable income — single filers must be below $191,950, and joint filers below $383,900 — which includes the net income, gains, deductions, and losses from a trade or business. Those above this income threshold see a reduced deduction. However, the deduction is not available for specialized service trades or businesses, such as lawyers, doctors, and consultants, that make above a certain threshold. At the time of this writing, the deduction is set to expire on December 31, 2025.

Use your car for work

Leveraging a personal car for business use can yield significant tax advantages for small businesses. To calculate your deductible car expenses, you can opt for the standard mileage rate — 70 cents per mile for 2025 — or itemize your actual expenses.

Using the standard mileage rate method, the IRS permits you to deduct business vehicle operating and maintenance expenses based on miles driven. Alternatively, the actual expense method requires small business owners to add up all car-related business expenses, including fuel, maintenance, tires, registration, taxes, licenses, lease payments, insurance, etc. Once you have that total, then deduct the percentage of these costs that corresponds to business use versus personal use to determine whether your actual vehicle expenses offer a larger tax saving than the standard mileage rate.

Small businesses can also get a tax write-off of the total cost of the vehicle, up to $20,200 including bonus depreciation. However, the vehicle must be used for business purposes and weigh over 6,000 pounds, and the deduction must be applied in the vehicle's purchase year. Should the vehicle serve dual purposes — both personal and business — the deductible expense may reach up to 50%, aligning with the extent of its business use.

[Read more: A Complete Guide to Filing Your Business Taxes]

Seek expert guidance

Online tax programs can simplify tax filing for small business owners, especially those without a dedicated financing team. However, these programs rely on user input, leaving room for error — especially if you have a complex filing or are behind on your tax obligations.

Working with an expert like a CPA, enrolled agent, or other qualified tax professional ensures you get the most out of your deductions. While their services come at a cost, professionals stay up to date on changing tax laws and know which deductions and credits will maximize your savings and ensure accuracy and compliance. Hiring an expert can help ensure your business's tax responsibilities are correctly fulfilled the first time, saving your company time and money.

Implement a 12 x 12 system

Instead of waiting for tax season to begin preparing, plan your taxes year-round to maximize savings. Doing so ensures that your business always has its important financial documents in order and isn't rushing during the tax season to produce all the necessary receipts and paperwork.

Take a more proactive approach to ensuring your business is always ready with a strategy like the 12 x 12 system. This process involves conducting 12 financial check-ins — one every month — for 12 months.

"Instead of waiting until tax season to gather receipts, invoices, and statements, business owners review and organize their records at the end of each month [in a 12 by 12 system]," explained Karla Dennis, an enrolled agent and the CEO and Founder of tax strategy agency KDA Inc. "This system turns tax prep into a manageable, year-round process instead of an overwhelming last-minute scramble."

As Dennis explains, this strategy reduces small businesses' audit risk by encouraging proper, well-organized recordkeeping. It can also improve cash flow by requiring monthly company financial reviews and continually reevaluating strategies.

"By implementing the 12 by 12 system, small businesses can stay ahead of their tax obligations, claim every deduction they deserve, and ultimately keep more money in their pockets in 2025 and beyond," Dennis said.

This article was originally written by Emily Heaslip.

CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.

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