Imagine that it’s tax day — you’ve just submitted your business’ return when you realize that you’re going to pay a lot more in taxes than you expected.

Sounds frightening, doesn’t it? Thankfully, it isn’t tax day — yet. If it isn’t already on your calendar, here’s your friendly reminder of this year’s business tax due dates:

• March 15 (for partnerships, S-corporations, and multi-member LLCs).
• April 18 (for sole proprietors, C-corporations, and single-member LLCs).

While they are technically weeks away, those filing dates are only getting closer and closer. So, if you want to avoid the nightmarish scenario above, it’s time to take a look at your tax situation and figure out where you can save some dough.

The question is: Where do you start? The IRS doesn’t make it easy to file taxes, especially for businesses. So, how can you save the most money without wading through piles of paperwork?

Fret no more — here are seven of the best ways for small businesses to save money on their taxes:

1. Fund retirement plans.

As an SMB owner, you miss out on that 401(k) match you see at most companies. But did you know that you can get some pretty sweet savings by setting up and funding a retirement account through your business?

There are several retirement account options recognized by the IRS that can maximize your retirement savings and get you some nice tax deductions. These accounts include:

• Simplified Employee Pension Plan (SEP).
• IRA or a Roth IRA.
• One-participant 401(k).‍
• 403(b).

The best plan for you depends on factors like your age, taxable income, and business structure. And once you’ve decided on a plan, you’ll be reaping the tax benefits every year. Even if the tax year has ended, you can still make retirement account contributions and reduce your total taxes for that year.

And here’s the best part: Setting up an employee retirement plan can save your business money on employee payroll taxes (under the Federal Unemployment Tax Act [FUTA]). Helping employees save for retirement while you save money on taxes? Sounds like a win-win.

2. Set money aside for healthcare needs.

Healthcare isn’t cheap — the good news is that as a business owner, you can lower your taxes by setting aside some cash for your healthcare needs.

One way is by paying your health insurance premiums. If you’re self-employed, you may be able to deduct some — if not all — of your premiums from your tax bill. Plus, this deduction extends to dental, vision, and long-term care insurance premiums. You might also be able to deduct the premiums you pay for your spouse and dependents.

Another way to save on your taxes is by setting up a Health Savings Account (HSA). You set aside money for future healthcare needs, and you get a triple tax advantage — your HSA contributions are considered pre-tax, grow tax-free, and can be withdrawn for qualified medical expenses tax-free.

3. Take advantage of small business tax credits.

Before you ask, yes, tax deductions and tax credits are two separate things. While they both help you save on your taxes, they enter the tax calculations at different stages, impacting how they affect your overall tax bill by a significant amount. Let’s break it down:

When people talk about writing off business expenses, they’re talking about tax deductions. You deduct expenses necessary to run your business (like rent, payroll, etc.). By keeping track of these expenses, you can claim these deductions on your taxes, which are then subtracted from your revenue to calculate your taxable income.

Now, tax credits are essentially dollar-by-dollar discounts on your tax bill. The IRS uses these credits to influence business decisions since most tax credits are meant to benefit companies and their employees, the environment, and the public. Tax credits are subtracted from your tax bill after your taxable income has been multiplied by your effective tax rate (which is determined by your business income).

Revenue - Deductions = Taxable income
Taxable income x Effective tax rate = Preliminary tax liability
Preliminary tax liability - Tax credits = Tax liability

Too much math? Here’s a TL; DR for you: Because tax credits come at the end of the tax liability calculation, they have a more significant impact on how much money you save.

Because they love us so much, the IRS has tax credits specifically for small businesses. The credits you can claim can be dependent on your income, employee size, or both. The best way to file for credits is with the General Business Credit form — it groups 25 separate tax credits (which you need to complete individual forms for) and tallies all the credits you qualify for.

4. Write off bad debts.

Debts, blech. We hope to never experience bad debts, but when it comes to business, it just happens. If your SMB operates on an accrual accounting method, chances are that you might have a customer or two who can’t afford to pay you.

Here’s the silver lining: You can write off what they owe you as a “bad debt” and deduct the amount from your business income. These debts can also apply to any loans you may have given to clients, vendors, or employees who haven’t paid you back.

5. Depreciate your fixed assets.

Business assets like equipment, machinery, vehicles, and even real estate can depreciate in value as time goes on. So, the IRS allows businesses to write off the amount equivalent to how much their assets have depreciated.

Typically, you would deduct the asset’s depreciation amount for the year you’re filing — however, in some circumstances, you can write off the full amount you invest in your business’ asset in the first year you own and use the equipment.

The two most common types of accelerated depreciation are Section 179 deductions and bonus depreciation. With Section 179, you can immediately deduct the costs of certain assets when they’re put into service — the maximum deduction amount for the 2022 tax year is $1.08M. With bonus depreciation, there’s a 100% tax break for qualified equipment put into service after September 27, 2017, but before January 1, 2023.

Note: Not every asset qualifies for accelerated depreciation, and there are restrictions.

6. See if you’re entitled to the Qualified Business Income deduction.

The Qualified Business Income deduction (or QBI for short) allows eligible business owners to write off up to 20% of their qualified business income. This deduction is only available for owners of pass-through entities — sole proprietorships, partnerships, and S-corporations — where you report your share of business income on your personal return.

It’s a personal write-off that’s available whether you take the standard deduction or itemized deductions. The deduction also includes up to 20% of qualified real estate investment trust (REIT) dividends and publicly traded partnership (PTP) income.

7. For the future: Consider timing business income and expenses.

In about nine to ten months, we’ll be approaching the end of another tax year. This is a great time to engage in some year-end tax planning strategies that can help you save as much as possible. AKA, timing your income to shift how many taxes you’ll pay this year versus the next.

Here’s an example: Let’s say you want to reduce your tax liability for the current year. Before the tax year ends, you can increase your expenses (prepay certain costs like rent, stock up on supplies, or pay all outstanding accounts) and decrease your taxable income — which will lower the amount of taxes you owe come deadline day.

You can also defer year-end billing to shift some income to next year, set up your benefits plan early, and/or make some charitable contributions. 

Tax season is stressful enough without worrying about paying more money than necessary. That’s why it’s time to take advantage of all your opportunities to save. May your liabilities be low and your deductions high.