8 Tax Filing Strategies for Small Business Owners

Small restaurant owner talking on the phone as she tracks her business orders on a laptop

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If you’re a business owner, then tax season can bring on a whole new set of tax-related challenges. Fortunately, there are a number of valuable tax filing strategies to maximize credits and deductions that can benefit a business owner.

The federal government levies four basic types of business taxes: income tax, self-employment tax, taxes for employers, and excise taxes. The IRS has a helpful Guide to Business Taxes that provides information on each of these categories.

Determining what federal tax forms you need to file will depend on the form of your business. Each form of business—sole proprietorship, partnership, corporation, S corporation, and limited liability company (LLC)—has specific sets of filing rules. When it comes to state taxes, your requirements will also depend on the legal structure of your business.

Many small business owners find comfort in working with a CPA or qualified tax professional. If you feel comfortable enough to prepare your taxes on your own, there are several great filing strategies to maximize credits and deductions that you'll want to be aware of.

1. Claim the Health Care Tax Credit

You’ll want to speak to your CPA to make sure you’re eligible, but the health care tax credit can produce some savings. This credit benefits employers with fewer than 25 full-time employees that pay an average salary of less than $50,000 per year and pay at least half of employee health insurance premiums.

2. Deduct Certain Property

Known as Section 179 property, this deduction can include up to $1,000,000 of eligible business property. You can only deduct the full amount in the year your business began using the property, so it works well for those who have recently moved, or for business owners who acquired new property used for transportation, manufacturing, business, or research.

3. Deduct Charitable Contributions

Sole proprietors, partnerships, LLCs and S-corporations can't deduct charitable contributions as a business expense, but the business owner can claim any contributions made by the business as an itemized deduction on Schedule A of Form 1040.

The CARES Act authorizes a one-time deduction up to $300 for charitable contributions made in 2020, even if the taxpayer elects not to itemize.

4. Pay Attention to Miscellaneous Deductions

Out-of-town business travel, ATM card fees for your business, and even newspapers bought to conduct your business can be used as deductions.

5. Claim the Work Opportunity Tax Credit

If your business is eligible, this credit can be beneficial to your tax filing and is available to those who hire veterans, disabled people, and other disenfranchised groups. The credit amount can vary, but in general, you can receive up to 40% of the first $6,000 of qualified wages paid to a new hire from one of the specified groups.

6. Claim a Credit if Your Business Provides Child Care Expenses

If your business pays for your employees’ child care expenses, you can receive a tax credit. The credit is 25% of the expenses paid, up to $150,000 a year. In some cases, This is a better tax break for you than claiming your own child tax credit on an individual return. 

7. Claim the Pension Plans Startup Cost Credit

If you’ve just started a pension plan for your employees, you may be eligible for a credit. It’s limited to $500, but that can recoup the costs of starting the plan.

8. Deduct Health Care Premiums

This doesn’t apply to group plans, but if you have an individual health plan and pay premiums out-of-pocket without a tax break, you might be able to claim those premiums as an income deduction.