To prevent getting shocked by massive tax payments, small business enterprises must carefully calculate their taxes as their revenue rises. Planning your taxes is essential for an efficient cash flow, and several techniques are applicable for lowering tax payments, particularly for small business owners.


Some solutions include weighing the advantages of taking out a loan, considering the home office deductions, establishing retirement contributions, deferring or accelerating your income, giving out charitable donations, and being wise in purchases of equipment and its depreciations.

 Weighing the Scales of What You Owe and What is Owed to You

Many entrepreneurs with small businesses depend on debt to fund their growth plans. You can swing through partnering with credible lending platforms like, among other credit providers with low interest rates. A loan is not taxable compared to company revenue, although interest payments may be taxable. Consider your options and consult an accountant to see whether you can take out a tax-efficient loan for your growth plans.

Simultaneously, verify that you write off any uncollectible debts your business accumulated over the year. Bad debts are your account receivables– owing to the company by a client but not collected by your business or creditor. The Internal Revenue Service (IRS) allows you to write down bad debts before your business cycle or year ends.

 Take Advantage of Your Home Office Expenses as Deductions

Home office expenses are among those frequently overlooked costs that may spare you a significant income on your taxes. This notion is partially due to widespread misunderstanding about what constitutes a home office. The IRS permits homeowners and tenants to file for a home office deduction, so you are entitled to it even though you rent out your workspace.

To file for home office deductions, you must have two things:

  1. The workspace must be the principal area of operation. It indicates that you have no other office holding management activities like engaging calls for sales, accounting, bookkeeping, creating appointments, billing customers, etc., with exclusivity and regularity.
  2. The usage of the workspace must be regular and exclusive. The area designated as your workspace needs to be utilized solely for business-related reasons. You are unqualified for deduction if any family member or any person uses that workspace as a place to stay.

Establishing a Retirement Contribution Plan

Contributing to a retirement plan may not just be putting money into future welfare; it’s also leverage on reducing how much you pay in taxes. Like additions to a 401(k) plan are contributed within the income before tax, which means your payroll system for monthly paycheck falls with every wage period, resulting in a reduced tax rate.

Along with 401(k) plans, various retirement choices can help you optimize savings for retirement and reap substantial tax savings. Among these are: (1) Roth Individual Retirement Account (IRA) or regular IRA, (2) Simplified Employee Pension (SEP) IRA plan, (3) 403(b), plans available for non-profit organizations and for those who work in the government.

 Deferring or Accelerating Your Income

Your income tax is in parallel with the computation of how much income you earned during your business cycle. From this perspective, the line between income and taxes is in a direct relationship: a soaring income only means lowering taxes. With that, you should formulate a strategy to defer and accelerate income.

Here are two promising techniques on how to accelerate and defer income based on the accounting methods:

  1. Accrual – this basis relates to the idea that your business will not record earnings until the fulfillment of services and delivery of goods. Consider the help of an accountant to advise you when to charge a bill or take it as earnings upon this basis, for there are uncompromising guidelines that must be followed.
  2. Cash – this basis relates to the notion that if there’s no money received, no earnings are recorded. To make use of this, you can tactically extend due dates or delay the invoices.

Giving out Charitable Donations

Aiding a cause worthy of your donations does not only assist those in need but will also assist you during your tax declaration moments. Taxpayers are allowed by the IRS to have two choices of deductions: the standard deduction and itemized deduction.

To be eligible for a deduction using your donations to charitable institutions, these institutions must have not given anything in return, and you must use itemized deduction in filing for your tax return Schedule A (IRS Form 1040). Having filed your deductions using standard deduction won’t lower the gross income through donations, thus having unaffected tax returns.

Being Wise in Purchases of Equipment and its Depreciations

Smart choices of your equipment and its depreciation methods will lead you to favorable changes in your expenses. Write-downs on procurement and removing old and obsolete equipment from the books will assist in the computations of your tax returns. Moreover, if you have purchased new equipment, it will aid you in declaring higher expenses when it is procured at an earlier date in the business because the equipment will depreciate at a reduced time using a shorter depreciation timeline.

Final Thoughts

Every small business has a unique tax circumstance. It’s only up to you how to tailor well the nooks and crannies of the tax system. It is always wise to have a financial advisor and a licensed accountant at your disposal. These professionals know quite well how to guide you in making huge financial decisions, especially maximizing your tax deductions.


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