Tips for Reducing Your Tax Liability
- Tammy Hoang
- May 27
- 5 min read
Every business has to pay a lot of money in taxes, but if you plan ahead, you can lower your tax bill and keep more of your revenue for growth. At Pathfinding Consultants, we know how hard it is for business owners to understand the tax rules that affect them. By putting in place smart tax savings for businesses, you can reduce tax liability while still following IRS rules. This article gives you eight useful ways to lower your tax bill, answers some common questions, and gives you tips you can use to make tax season easier.
Reducing Tax Liability Matters
1. Plan Throughout the Year for Taxes
Start Early in the Year
It might seem early to start planning your taxes in January, but being prepared pays off. Planning ahead of time lets you guess how much money you'll make, keep track of deductible business expenses, and find ways to save on taxes, like retirement contributions or credits.
Revisit at Year-End
Review your financials at the end of the year to find any last ways to reduce tax liability. For example, you may find that you can lower your taxed income by putting more money into your Traditional 401(k) before taxes. A business owner whose tax rate is 24% would gain $1.
2. Contribute to Your Retirement Accounts
When you put money into a Traditional 401(k), Traditional IRA, or Roth IRA, you can reduce tax liability and build long-term wealth at the same time. Each choice has its own tax advantages, which makes them all useful tools for businesses that want to save money on taxes.
Traditional 401(k)
A Traditional 401(k) allows business owners and employees to contribute pre-tax income, reducing taxable income for the year. For 2025, the contribution limit is $23,000 for those under 50, plus a $7,500 catch-up contribution for those 50 and older. Employers can also make matching contributions, which are deductible as business tax deductions.
Traditional IRA
A Traditional IRA offers tax-deductible contributions for eligible business owners, particularly those without access to a 401(k). The 2025 contribution limit is $7,000 ($8,000 if 50 or older). Deductibility depends on income and whether you or your spouse have a workplace retirement plan.
Roth IRA
Unlike the Traditional 401(k) or Traditional IRA, a Roth IRA uses after-tax contributions, meaning no immediate deduction. However, qualified withdrawals in retirement are tax-free, offering long-term tax savings for businesses. The 2025 contribution limit is the same as a Traditional IRA: $7,000 ($8,000 if 50 or older).
3. Contribute to Your Health Savings Account (HSA)
If your company offers a high-deductible health plan, you can put money into an HSA and get tax-free growth and withdrawals for approved medical costs. This is a strong way to lower your tax bill.
Who Qualifies for an HSA?
You need to be signed up for a high-deductible health plan (HDHP) with a deductible of at least $1,600 for a person or $3,200 for a family in 2025. HSAs are great for business owners who want to save money on taxes and health care.
4. Consider a Qualified Charitable Distribution (QCD) if Over 70.5
If you are a business owner over 70.5 years old and have a standard IRA, you can give up to $100,000 to a charity without having to pay taxes on it. This is called a Qualified Charitable Distribution (QCD). This can reduce tax liability without hurting your cash flow.
How Does a QCD Work?
Funds must go directly from your IRA to a qualified charity. For example, a retiree business owner donating $10,000 via a QCD avoids taxes on that amount, potentially saving $2,400 in the 24% tax bracket.
5. Maximize Business Tax Deductions
One important part of tax planning is making sure that all of the business tax benefits that are available are claimed. The IRS lets people subtract "ordinary and necessary" costs, which lowers taxable income by a large amount.
Common Deductible Business Expenses
Office Costs: Rent, utilities, and supplies.
Employee Benefits: Salaries, health insurance, and retirement contributions.
Marketing: Advertising, website costs, and promotional materials.
Professional Fees: Payments to accountants or consultants.
6. Leverage Tax Credits
Tax credits directly reduce your tax bill, making them more valuable than deductions. A lot of businesses can get benefits but don't because they don't know about them.
Key Tax Credits
Work Opportunity Tax Credit (WOTC): For hiring from targeted groups (e.g., veterans).
Research and Development (R&D) Credit: For innovation-related expenses.
Energy Efficiency Credits: For eco-friendly upgrades like solar panels.
How Do I Find Applicable Credits?
Review IRS Form 6765 for R&D credits or consult a tax professional. For instance, a tech startup spending $60,000 on software development might claim an R&D credit, saving $6,000 directly.
7. Consider Tax-Loss Harvesting
Tax-loss harvesting involves selling investments at a loss to offset capital gains, reducing your taxable income. This strategy is useful for business owners with investment portfolios.
Apply this strategy near year-end after reviewing your portfolio. Be cautious of the “wash-sale rule,” which disallows losses if you repurchase the same security within 30 days. Consult a financial advisor to align this with your tax planning strategies.
8. Hire a Professional for Tax Planning Strategies
Navigating tax laws requires expertise. A professional bookkeeper or tax advisor can tailor tax planning strategies to your business, ensuring compliance and maximizing tax savings for businesses.
Experts identify hidden business tax deductions, credits, and strategies like the Pass-Through Entity Tax (PTET), which can bypass the $10,000 SALT cap, saving thousands. For example, an S-corp leveraging PTET might save $13,020 federally on a $42,000 state tax payment.
Look for certified professionals with experience in your industry. Pathfinding Consultants offers tailored solutions for businesses
Real-World Scenario: A Business Owner’s Success
Meet John, who runs a small IT consulting firm with $500,000 in revenue. To reduce tax liability, John:
Plans quarterly, identifying $25,000 in deductible business expenses (e.g., software, travel).
Contributes $15,000 to a Traditional 401(k), saving $3,300 in taxes (22% bracket).
Adds $4,150 to an HSA, saving $996.
Claims an R&D credit for $50,000 in development costs, saving $5,000.
Uses tax-loss harvesting to offset $8,000 in gains, saving $1,760.
Works with Pathfinding Consultants to implement PTET, saving $10,000 federally.
These tax planning strategies save John over $20,000, allowing him to hire a new developer.
How Pathfinding Consultants Can Help
At Pathfinding Consultants, we specialize in helping businesses reduce tax liability through expert tax planning strategies. Our services include:
Expense Tracking: We categorize deductible business expenses to maximize deductions.
Tax Compliance: We ensure your books are audit-ready and compliant with IRS rules.
Strategic Planning: We identify credits, deductions, and strategies like PTET to optimize savings.
Industry Expertise: From law firms to retail, we tailor solutions to your needs.
Key Takeaways
Reducing your tax liability requires proactive planning and expert guidance. By planning year-round, contributing to accounts like Traditional 401(k) or Roth IRA, using HSAs, leveraging QCDs if applicable, maximizing business tax deductions, claiming credits, harvesting losses, and hiring professionals, you can achieve significant tax savings for businesses. Start implementing these tax planning strategies now to strengthen your financial future. With Pathfinding Consultants’ support, you’ll navigate tax season with confidence and keep more of your revenue.
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