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\n\t\tOpinions expressed by Entrepreneur contributors are their own.\t<\/p>\n
Tax season can be brutal for even the most organized entrepreneurs. Not only do you have to take time out of your business to deal with the ins and outs of filing, but you\u2019re forced to come to terms with just how much of your hard-earned money is going to the government each year.<\/p>\n
If that number made your stomach drop this year, you\u2019re not alone. When you add up federal, state and local taxes, the combined bill for most Americans<\/a> is between a quarter and a third of their annual income. That\u2019s one out of every three or four dollars. Gone.<\/p>\n That same math is also what makes tax strategy so powerful. In my years of working with business owners and investors, I\u2019ve found that reducing your taxes is consistently the fastest way to increase your cash flow. <\/i>Even better, you can compound your return by reinvesting that money in your business or other investments.<\/p>\n When I sit down with entrepreneurs who are frustrated by their tax bills, I almost always find they\u2019ve overlooked at least one of four basic strategies for permanent tax reduction. Start to review these now to take the sting out of next year\u2019s tax bill.<\/p>\n If you\u2019re making more than $75,000 and paying tax as a sole proprietor, you\u2019re probably losing $10,000 to $15,000 a year just in extra self-employment tax. Simply switching to an S corporation can put much of that money back in your pocket. Yet, according to the U.S. Small Business Administration<\/a>, 86% of nonemployer firms and 13% of small employer firms are sole proprietorships.<\/p>\n Why is this so common? Setting up an LLC as a sole proprietorship is easy. I\u2019ve even worked with entrepreneurs whose own accountants told them to set up their business this way on the premise that it\u2019s quick, inexpensive and you might even be comfortable filling out the tax return yourself.<\/p>\n What those entrepreneurs fail to calculate is the self-employment tax<\/a>. Sole proprietors pay a 15.3% self-employment tax on their net profit, which covers both the employee and employer shares of Social Security and Medicare. Entrepreneurs taxed as an S corporation, on the other hand, pay themselves a reasonable salary, which is subject to self-employment taxes. Then, the remaining business profit can pass through to them without these taxes.<\/p>\n On top of that, the right structure can reduce your risk. IRS data shows<\/a> that taxpayers who file as sole proprietors are more likely to be audited than those with an LLC who file as an S corporation.<\/p>\n One of the most pro-entrepreneur changes to U.S. tax law recently was the return of 100% bonus depreciation<\/a>, which allows you to deduct the full purchase price of many business assets in the year you purchase them.<\/p>\n Here\u2019s an example of how powerful it can be. Let\u2019s say you\u2019ve been thinking of buying a $100,000 property in which to expand your business. You plan to put $20,000 down and borrow $80,000 from the bank. You could get as much as a $30,000 deduction (with cost segregation) even though you only put in $20,000 yourself. Remember: The bank never gets the depreciation deduction. You do.<\/p>\n On top of that, you\u2019re making the purchase to grow your business. And, in the case of a real estate purchase, you\u2019ll likely see the property increase in value over time.<\/p>\n While depreciation is the king of all tax deductions, it\u2019s far from the only one. Because the government wants to encourage people to invest in businesses, entrepreneurs have access to more tax deductions than most other taxpayers. Yet, many often overlook significant opportunities for savings.<\/p>\n One of the first deductions entrepreneurs unlock when they start their business is the home office deduction. If you are working from your home regularly, be sure to check out the IRS guidelines<\/a> for deducting the expenses for that part of your home. I\u2019ve seen taxpayers save thousands with this deduction alone.<\/p>\n Once you\u2019ve established a home office, you can also unlock additional deductions for your car. If you were working for someone else, your first and last drives of the business day are typically your commute to and from the office, which are not tax-deductible. But with a home office, your commute is a short walk from your kitchen. Any work-related drives you need to take from there are now deductible. The IRS gives you two options<\/a>: take the standard mileage deduction (currently 72.5 cents per mile) or calculate the actual cost of using your vehicle.<\/p>\n These deductions, along with the dozens of others, aren\u2019t tax loopholes. Work with your CPA to identify all of the deductions for which you qualify.<\/p>\n If you\u2019re trying to lose weight, you can\u2019t just eat healthy and work out for one day and expect to see great results. You need a diet and exercise plan that you will follow consistently, almost without thinking.<\/p>\n Permanently reducing your taxes works the same way. The more systems you create to ensure you are making the right moves as a natural part of your day-to-day work, the more consistently you will see results.<\/p>\n If you\u2019d like your tax bill to lose some weight by April 2027, start now. Review your current business and financial goals. Then, learn all that you can about the tax strategies above and other incentives available to business owners. Make a habit of recording your expenses, such as mileage, in real time, and schedule regular check-ins with your CPA.<\/p>\n The goal is to make strategic tax decisions a natural byproduct of running your business, not a quarterly or once-a-year scramble.<\/p>\n Your 2025 tax bill may have been painful, but it\u2019s not too late to have a different outcome next year. The key is to start making different moves today.<\/p>\n<\/p><\/div>\n Tax season can be brutal for even the most organized entrepreneurs. Not only do you have to take time out of your business to deal with the ins and outs of filing, but you\u2019re forced to come to terms with just how much of your hard-earned money is going to the government each year.<\/p>\n If that number made your stomach drop this year, you\u2019re not alone. When you add up federal, state and local taxes, the combined bill for most Americans<\/a> is between a quarter and a third of their annual income. That\u2019s one out of every three or four dollars. Gone.<\/p>\n That same math is also what makes tax strategy so powerful. In my years of working with business owners and investors, I\u2019ve found that reducing your taxes is consistently the fastest way to increase your cash flow. <\/i>Even better, you can compound your return by reinvesting that money in your business or other investments.<\/p>\n<\/p><\/div>\nStrategy 1: Make sure you have the right business structure<\/b><\/h2>\n
Strategy 2: Take full advantage of bonus depreciation<\/h2>\n
Strategy 3: Maximize all available deductions, starting with your home office<\/h2>\n
Strategy 4: Put your tax reduction on autopilot<\/h2>\n
Key Takeaways<\/h2>\n
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