20 Best Tax-Saving Strategies for Entrepreneurs

Entrepreneurs' taxes are often very high, but many clever ways exist to lower them. These range from business deductions to retirement contributions. If entrepreneurs understand and use these strategies, they can pay less taxes and keep more of their hard-earned money.

Tricia Quitales
March 25, 2025
6 min read

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Tax breaks are crucial for business owners wishing to maximize their income and reinvest it into their respective businesses. This article lists 20 smart strategies for business owners to legally and effectively cut their tax liabilities. It covers basic methods like using company expenses and funding retirement plans. It also incorporates more intricate tactics, including tax credits and family member hiring. Using these suggestions will help entrepreneurs reduce their taxable income, create future plans, and financially make their businesses safer.

1. Take Advantage of Business Deductions

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Many of the expenses you run across running your company could be deductible to you as a business owner. Among these are office supplies, business travel, marketing expenses, and possibly even your house should you work from home. Maintaining accurate records of all your expenses helps maximize every tax deduction.

2. Set Up a Retirement Plan

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Investing in a retirement plan is a great way to lower your taxable income and secure your future. Small business owners can invest a lot of money in plans like SEP IRAs and 401(k)s, and their contributions are taken from their taxable income. Also, until retirement, these contributions grow without being taxed.

3. Use Tax Credits

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Because they reduce your tax load, tax credits are a great way to save money. If your company succeeds, it could apply for credits, including Research and Development (R&D) or Work Opportunity Credit. Ensure you know every credit available to businesses in your sector.

4. Deduct Health Insurance Premiums

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If you are self-employed, you can deduct the cost of your health insurance premiums. This is true for your insurance and the insurance of your spouse and children. This deduction cuts your taxable income by removing the insurance payments from your gross income.

5. Keep Track of Depreciation

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Things that belong to a business, like vehicles and equipment, can lose value over time. This lets you write off some of the cost every year, which lowers the amount of money you have to pay taxes on. Keep track of how much each asset has lost in value to ensure you claim the right amount.

6. Hire Family Members

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Hiring your spouse or kids can help your taxes in big ways. You can deduct the wages you pay your family, and if you hire your kids, their pay may be less than the taxable limit. This lets you give some of the money from your business to family members who pay less in taxes.

7. Invest in Energy Efficiency

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You can get tax breaks if you buy energy-saving equipment or change your office or building. Businesses that go green can get help from the IRS, such as tax breaks for installing renewable energy systems. These investments will not only lower your taxes, but they may also lower your utility costs in the future.

8. Keep Track of Business Mileage

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You can write off the mileage you drive for work if you do it for work. This includes trips to deliver goods, meet with clients, or attend meetings. Ensure you keep track of your miles and that your car meets the IRS’s requirements for deductions.

9. Use an S Corporation Election

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You can save on self-employment taxes if your business is taxed as an S corporation. You only pay self-employment tax on your salary instead of all your income. This could save you a lot of money, especially if your business is making money.

10. Deduct Startup Costs

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When you start a new business, you can write off some costs, like advertising, legal fees, and market research. The IRS lets you deduct up to $5,000 in the first year. Any costs you have after that are spread out over 15 years. This can lower your initial tax bill significantly.

11. Contribute to a Health Savings Account (HSA)

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If your health plan has a high deductible, funding an HSA will significantly affect your taxes. The money you contribute to an HSA can be deducted from your taxes; the money will grow tax-free. Furthermore, withdrawals for specific medical expenses are not taxed either.

12. Utilize the Section 199A Deduction

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Section 199A allows business owners to deduct up to 20% of their qualified business income. People who own pass-through businesses, such as sole proprietorships, partnerships, and S corporations, can take this deduction. Talk to a tax expert to find out if your business is eligible.

13. Invest in Qualified Opportunity Funds

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Qualified Opportunity Funds (QOFs) allow investments in low-income neighborhoods for tax breaks. Depending on the length of the investment, if you invest in these funds, you may be able to postpone or eliminate capital gains taxes. This is a wise decision if you wish to change things and simultaneously save taxes using savings.

14. Maximize Your Education Deductions

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Business-related education, such as certifications in your field or classes meant to hone your skills, can be written off. This covers the expense of attending conferences or seminars, which also benefits your company. Save all your receipts and other documentation proving your school expenditure of funds.

15. Take Advantage of the Home Office Deduction

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If you run your business there, you can get a tax break for working from home. You can use this deduction for a portion of your mortgage, utilities, and other costs related to your home. To qualify, the space must be regularly used only for business purposes.

16. Use the Cash Method of Accounting

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Using the cash method of accounting is good for small businesses because it lets you deduct costs when they are paid, not when they happen. This may help you keep track of your cash flow and lower your taxable income this year. Bigger companies may need to use the accrual method.

17. Claim Business Bad Debts

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You can write off non-paid debts for your business as bad debts. This may lower the amount of taxable income, which will reduce your tax bill. Ensure you track how often you tried to collect the debt and why you wrote it off.

18. Take Advantage of the Dependent Care Credit

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To get the dependent care credit, you may need to pay for care for your children or other people who depend on you. You can use this credit to help pay for daycare or programs for kids after school. It’s a great way to lower your tax bill while still caring for your family and business.

19. Prepay Business Expenses

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Paying for things like rent or insurance premiums ahead of time can help lower your taxable income. You can deduct the costs in the current tax year if you pay before the end of the year. This is a smart way to get your tax bill down.

20. Use the Tax Advantages of a C Corporation

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Many people use S corporations, but C corporations have different tax advantages, especially for bigger companies. The owners of a C corporation are taxed separately from the corporation itself. This can let business owners reinvest profits at a lower corporate tax rate. However, they might have to pay taxes twice, so it’s important to talk to a tax expert to see if this is a good choice for your business.