35 Ways to Legally Reduce Your Business Taxes
This is your complete reference for business tax strategies—everything from choosing the right entity structure to maximizing depreciation to claiming often-missed tax credits.
What's included:
- Entity optimization strategies (save $5K-$50K/year)
- Depreciation strategies (save $20K-$400K/year)
- Tax credits (save $5K-$250K/year)
- Retirement plans (contribute $50K-$500K/year)
- Advanced strategies for larger businesses
Updated for the One Big Beautiful Bill Act (July 4, 2025):
- Permanent 100% bonus depreciation
- $2.5M Section 179 limit (doubled!)
- Permanent 20% QBI deduction
Operator’s note (Sam Young, EA): I’ve restructured dozens of closely held businesses (S‑Corp, accountable plans, retirement) and implement these playbooks annually with owners and their CPAs.
Strategy #1: Choose the Right Business Structure
Your business structure determines your entire tax situation. Here's the quick guide:
| Structure | Tax Rate | Best For | Key Benefit |
|---|---|---|---|
| LLC/Sole Prop | Your personal rate - 20% QBI | Most small businesses | Simple, flexible |
| S Corporation | Personal rate - 20% QBI + W-2 | Reducing self-employment tax | Save on SE tax |
| C Corporation | 21% flat | Raising capital, selling for $10M+ | QSBS exclusion |
Most common: S-Corp for businesses earning $60K+
Entity & Compensation Strategies (34-41)
| Strategy | Savings | What It Does |
|---|---|---|
| 34. S-Corp Election | $5K-$50K/year | Avoid 15.3% self-employment tax on distributions |
| 35. Accountable Plan | $10K-$35K/year | Reimburse expenses tax-free (cell, home office, etc.) |
| 36. HRA (Health Reimbursement) | $2K-$7.5K/year | Make family medical costs deductible |
| 37. Educational Assistance | $2K-$10K/year | Pay up to $5,250/employee tax-free for education |
| 38. Employee Achievement Awards | $2K-$7K/year | Tax-free awards for service/safety |
| 39. ESOP (Employee Stock Plan) | $250K-$10M+ | 100% ESOP S-Corps pay zero tax |
| 40. Captive Insurance | $50K-$1M+/year | Form your own insurance company |
| 41. IC-DISC (Exporters) | $20K-$300K/year | Convert income to qualified dividends |
Quick highlight - S-Corp example:
- LLC earns $150K
- Pay yourself $60K salary (reasonable wages)
- Take $90K as distributions (no self-employment tax on this)
- Save: $90K × 15.3% = $13,770/year
Depreciation & Asset Strategies (42-45)
| Strategy | Savings | What It Is |
|---|---|---|
| 42. Cost Segregation | $20K-$400K first year | Reclassify building components to 5-15 year depreciation |
| 43. 100% Bonus Depreciation | $10K-$500K+/year | Immediate 100% write-off (permanent!) |
| 44. Section 179 Expensing | $5K-$250K/year | Up to $2.5M immediate deduction |
| 45. Repairs vs. Capitalization | $1K-$100K/year | Classify expenses as repairs for immediate deduction |
Biggest opportunity: Cost segregation on buildings $500K+
- Typically identifies 20-40% of building value for acceleration
- Combined with 100% bonus = massive year-one deductions
- ROI usually 10-50x the study cost
QBI Deduction - The 20% Business Income Deduction (46-47)
Strategy 46: QBI Deduction (Section 199A)
- Deduct 20% of business income
- Made permanent by One Big Beautiful Bill Act
- Effectively reduces top rate from 37% to 29.6%
Example: $200K business income × 20% = $40K deduction = $9,600-$14,800 tax savings
Strategy 47: QBI Optimization
- Separate different business types for maximum benefit
- Manage W-2 wages to meet limitations
- Strategic year-end planning
Business Tax Credits (48-55)
| Credit | Savings | Who Qualifies |
|---|---|---|
| 48. R&D Tax Credit | $5K-$250K+/year | Software dev, engineering, manufacturing improvements |
| 49. ERC (Employee Retention) | Up to $26K/employee | 2020-2021 COVID period (still claimable!) |
| 50. WOTC (Work Opportunity) | $2.4K-$9.6K/employee | Hiring from targeted groups |
| 51. 179D (Energy Buildings) | $1.50-$5/sq ft | Energy-efficient HVAC, lighting, envelope |
| 52. Disabled Access | Up to $5K | ADA compliance improvements |
| 53. Small Employer Health | Up to 50% of premiums | Small businesses offering health insurance |
| 54. Pension Startup | $1.5K-$15K (3 years) | Starting retirement plan |
| 55. State Credits | Varies | State-specific incentives |
Don't miss: R&D credit applies to way more than you think—software development, improving processes, even developing new menu items for restaurants can qualify.
Advanced Strategies (56-68)
Retirement Plans (Bigger Contributions = Bigger Deductions)
| Plan Type | Max Contribution | Best For |
|---|---|---|
| 56. Cash Balance Plan | $300K+/year | Profitable biz, owners 45+, want huge deductions |
| 57. Defined Benefit Plan | $250K+/year | Traditional pension, age-based |
| 58. SEP IRA | $70K/year | Self-employed, easy setup |
| 59. SIMPLE IRA | $16K/year | Small businesses under 100 employees |
Advanced Entity Structures
| Strategy | Savings | What It Does |
|---|---|---|
| 60. IP Holding Company | $10K-$50K/year | License IP from tax-friendly state |
| 61. Management Company | $20K-$100K/year | Shift profits between entities |
| 62. Cost-Sharing (R&D) | $10K-$40K/year | Share R&D costs across entities |
| 63. Partnership 754 Election | $10K-$40K/transaction | Step-up basis on partnership purchases |
| 64. Accounting Method Change | $20K-$70K one-time | Switch to defer income/accelerate deductions |
State Tax Optimization
| Strategy | Savings | What It Does |
|---|---|---|
| 65. PTE/PTET Election | $20K-$80K/year | Bypass $10K SALT cap |
| 66. Reasonable Compensation | $5K-$50K/year | Balance S-Corp salary vs distributions |
| 67. State Apportionment | $15K-$60K/year | Allocate income strategically across states |
| 68. Multi-State Planning | Varies | Coordinate structures across jurisdictions |
How to Implement: Start Here
For new businesses (Year 1):
- Choose S-Corp structure (if earning $60K+)
- Set up accountable plan for expense reimbursements
- Plan equipment purchases for Section 179/bonus depreciation
For existing businesses:
- Review entity structure—should you be an S-Corp?
- Get cost segregation study (if you own building)
- Identify applicable tax credits (R&D, hiring, energy)
- Consider retirement plan upgrades (Cash Balance if profitable)
Year-end moves (before December 31):
- Equipment purchases for immediate write-off
- Year-end bonuses for QBI optimization
- Retirement plan contributions
- Expense prepayments where beneficial
Common Questions
Q: Which strategy saves the most money?
A: Cost segregation typically has the highest ROI (10-50x) for property owners. For non-property businesses, R&D credits and entity optimization provide the best returns.
Q: Can small businesses use these?
A: Yes! S-Corp election, Section 179, and basic retirement plans work for any size business. Advanced strategies (captive insurance, complex entities) are for larger businesses.
Q: How do I prioritize?
A: Start with entity structure + QBI deduction (immediate impact). Add depreciation strategies if you buy assets. Layer on credits and retirement plans as your business grows.
Q: Do these work together?
A: Yes! Example: S-Corp + QBI + cost segregation + cash balance plan = $100K+ annual savings when combined.
Related Reading
Sources
- IRS Publication 535 — Business Expenses: https://www.irs.gov/publications/p535
- IRS Publication 946 — How to Depreciate Property (Sec. 179 and bonus): https://www.irs.gov/publications/p946
- Qualified Business Income Deduction (Section 199A): https://www.irs.gov/newsroom/qualified-business-income-deduction-section-199a
- Form 4562 (Depreciation and Amortization): https://www.irs.gov/forms-pubs/about-form-4562
- Form 6765 (Credit for Increasing Research Activities): https://www.irs.gov/forms-pubs/about-form-6765
Disclaimer: Educational purposes only. Work with qualified tax professionals.
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