How Can I Legally Reduce My Business Taxes in the United States?

 As a small business owner in the United States, one of your biggest ongoing concerns is how much of your hard-earned money goes to taxes. Federal, state, and local taxes can eat into your profits, but the good news is that there are many legal strategies you can use to reduce your tax burden. Understanding the U.S. tax code — or partnering with experts who do — is key to keeping more money in your business and reinvesting in your growth.

In this comprehensive blog post, we’ll cover the most effective and legal ways to reduce your business taxes in the United States, from deductions and credits to smart structuring and proactive planning.

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Why Tax Planning Matters for Small Businesses

Tax planning isn’t just something you do during tax season. It’s a year-round strategy that can:

• Improve your cash flow

• Free up capital for growth

• Make your business more competitive

• Protect your personal wealth (in pass-through entities)

While tax avoidance is legal (strategically minimizing your tax liability), tax evasion (illegally hiding income or falsifying documents) is not. This post only covers 100% legal methods to reduce taxes under U.S. laws.

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1. Choose the Right Business Structure

One of the biggest factors in your tax liability is your business entity type. Your structure determines how you're taxed.

Sole Proprietorships & Partnerships

These are pass-through entities, meaning profits are taxed as part of your personal income. You pay self-employment taxes (Social Security and Medicare) on all net income.

LLCs

LLCs offer flexibility. You can choose to be taxed as a sole proprietorship, partnership, or S corporation. Electing S corp status can reduce self-employment tax liability.

S Corporation

An S Corp allows you to pay yourself a “reasonable salary” (subject to payroll taxes) and take the rest of your profit as distributions, which are not subject to self-employment taxes.

C Corporation

C Corps are taxed separately from the owners, but the downside is double taxation (on corporate income and dividends). However, you may benefit from the flat 21% corporate tax rate and be able to deduct fringe benefits.

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2. Maximize Business Deductions

The IRS allows businesses to deduct “ordinary and necessary” expenses. Keep excellent records to claim every deduction you’re entitled to.

Common Deductible Business Expenses:

• Office rent or home office (if you qualify)

• Utilities and internet

• Business insurance

• Employee wages and benefits

• Contract labor (freelancers)

• Business travel and meals (50%)

• Advertising and marketing

• Professional services (legal, accounting)

• Interest on business loans

• Software subscriptions and apps

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3. Leverage the Home Office Deduction

If you run your business from home, you might qualify for the home office deduction. You can use:

• The simplified method ($5 per square foot up to 300 sq ft)

• The actual expense method (calculating the percentage of your home used for business and deducting that share of rent, mortgage interest, utilities, etc.)

Note: Your home office must be used exclusively and regularly for business.

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4. Deduct Startup Costs

If you’re in your first year of business, you can deduct up to $5,000 in startup expenses (with phase-outs starting at $50,000) and amortize the rest over 15 years. Eligible expenses include:

• Market research

• Legal and accounting fees

• Advertising

• Travel related to setup

• Equipment and supplies

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5. Contribute to Retirement Plans

Small business owners can reduce taxable income by contributing to retirement plans:

Options include:

• SEP IRA – Contribute up to 25% of compensation or $69,000 (2024 limit), whichever is less.

• Solo 401(k) – Up to $23,000 in salary deferral contributions + employer contributions, with a total cap of $69,000 in 2024.

• SIMPLE IRA – A more streamlined option with contribution limits of $16,000 for employees and matching.

These contributions are tax-deductible and help you plan for the future.

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6. Deduct Business Use of Your Vehicle

If you use a personal vehicle for business, you can deduct the business portion of:

• Mileage (67 cents per mile in 2024)

• Or actual vehicle expenses (gas, maintenance, insurance, depreciation, etc.)

Keep a mileage log or use an app like MileIQ to substantiate your claims.

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7. Employ Your Family

Hiring a spouse or child can provide both tax savings and keep money in the family.

• Children under 18 working for a sole proprietorship or partnership are exempt from FICA taxes.

• Wages paid to your child are tax-deductible business expenses.

• You can set up a Roth IRA for your child using their earned income, which grows tax-free.

Make sure the work is legitimate and age-appropriate, and pay a reasonable wage.

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8. Defer Income and Accelerate Expenses

A classic end-of-year tax strategy is to:

• Defer income until January (next tax year)

• Accelerate expenses into December (current tax year)

For example:

• Wait to invoice a client until Jan 1

• Pay vendor invoices or order supplies before year-end

This works well for cash-basis taxpayers and must be applied consistently.

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9. Take Advantage of the Qualified Business Income (QBI) Deduction

Under the Tax Cuts and Jobs Act, many pass-through entities can deduct up to 20% of their qualified business income on their personal tax return.

To qualify:

• Your total taxable income must be under $191,950 (single) or $383,900 (married filing jointly) in 2024

• There are limits for service-based businesses (doctors, lawyers, consultants, etc.)

This deduction can significantly lower your taxable income without changing how you operate.

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10. Invest in Equipment and Use Section 179 and Bonus Depreciation

Buying equipment or machinery? You can write off the cost using:

• Section 179 Deduction: Deduct up to $1,220,000 of qualified property (2024 limit)

• Bonus Depreciation: Deduct 60% of the cost in the first year (2024), phasing down through 2026

Eligible property includes:

• Computers

• Office furniture

• Vehicles over 6,000 lbs (SUVs, trucks)

• Manufacturing machinery

These incentives encourage investment and can drastically lower your taxable income.

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11. Claim the Research & Development (R&D) Tax Credit

You don’t need to be a tech company to claim the R&D tax credit. Qualifying activities include:

• Developing or improving products, processes, or software

• Experimenting with new technologies or prototypes

• Innovating packaging or design

Even small businesses and startups can claim this credit — potentially up to $250,000 annually — against payroll taxes.

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12. Track and Deduct Business Travel and Meals

Business travel is 100% deductible, including:

• Airfare

• Hotels

• Transportation

• Conference fees

Meals while traveling or during business meetings are 50% deductible, but some types (like office parties) can be 100% deductible.

Keep all receipts and document:

• Who was present

• The business purpose

• The date and location

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13. Use an Accountable Plan

If you have employees (or yourself as an employee in an S Corp), use an accountable plan to reimburse business expenses like travel, tools, or home office utilities.

Properly structured reimbursements:

• Are tax-deductible to the business

• Are not taxable to the employee

• Reduce your overall taxable income

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14. Set Up a Health Reimbursement Arrangement (HRA)

Small businesses can use HRAs to help employees pay for medical expenses tax-free.

Popular options:

• Qualified Small Employer HRA (QSEHRA) – For businesses with fewer than 50 employees

• Individual Coverage HRA (ICHRA) – For employers offering individual plans instead of group insurance

HRAs are tax-deductible for the business and tax-free for employees.

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15. Consider Tax Credits

Unlike deductions, tax credits directly reduce your tax bill dollar for dollar. Some commonly overlooked small business credits:

• Work Opportunity Tax Credit (WOTC) – For hiring workers from target groups (veterans, SNAP recipients)

• Disabled Access Credit – For making your business accessible

• Employee Retention Credit (ERC) – For keeping employees during difficult times

• Paid Family and Medical Leave Credit

Credits can be more valuable than deductions and should always be explored.

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16. Hire a Professional Tax Advisor

One of the smartest moves you can make is to work with a qualified CPA or tax professional. They can:

• Identify hidden deductions and credits

• Create a year-round tax strategy

• File accurate returns and avoid audits

• Advise on entity formation and retirement plans

This investment often pays for itself many times over in savings and peace of mind.

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Final Thoughts: Plan Early, Save More

Tax savings don’t happen by accident. They’re the result of intentional, strategic planning throughout the year. By taking advantage of legal deductions, credits, and smart structuring, you can dramatically reduce your tax liability and keep more of your hard-earned income.

Here’s a quick recap of key strategies:

✅ Choose the right business entity
✅ Track every deductible expense
✅ Use tax-advantaged retirement accounts
✅ Reimburse through accountable plans
✅ Deduct startup and home office costs
✅ Pay your family
✅ Maximize Section 179 and bonus depreciation
✅ Invest in professional advice

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Want to Go Further?

If you’re serious about lowering your tax burden and building a more profitable business, consider:

• Consulting a tax strategist or CPA

• Automating your bookkeeping with software like QuickBooks or Xero

• Scheduling quarterly tax reviews

• Reading IRS Publication 535 (Business Expenses)

The money you save in taxes can be reinvested into your business — or your future.