What Are the Smartest Tax Moves for Entrepreneurs? Hint: Cost Segregation Is One of Them

Every business is different, and every business has its own tax strategy, structure, and long-term goals. This can get complex very quickly. LLC vs S Corp vs C Corp. How long you have been in business. How you generate revenue and what expenses you have. No matter what though, the most important advice is simple: plan ahead.

Proper documentation is the cornerstone of any successful tax strategy. By staying organized, you reduce the chance of errors and ensure you’re fully prepared when it’s time to file taxes. Start the year by identifying which deductions you’ll claim and setting up systems to track them—whether through apps, spreadsheets, or accounting software.

It’s just as important to schedule regular reviews. Monthly meetings with your bookkeeping team (which may simply be yourself) can help you stay ahead of potential issues, ensuring that you’re not scrambling at year-end.

Retirement plans offer a dual benefit - they reduce taxable income today while building simultaneously building your financial security for the future. Most accountants are familiar with the various options. This can be a heavy lift when initially digging in to all the options, but over time, you will come up with a thoughtful and strategic plan. Options such as SEP IRAs, Solo 401(k)s, and SIMPLE IRAs cater to small business owners’ needs -this includes self employed and larger companies.

Business travel expenses, like airfare and lodging, are fully deductible but require careful documentation. To maximize this benefit, make sure to take detailed records of every trip. Note the purpose of the trip and all related costs (meals, car rentals, airfare etc.) If you use your personal vehicle for work, consider mileage tracking apps. Just like picking an app for documenting receipts you want to find something you will actually use (and not just download and never look at). You can also consider combining personal and work travel - but make sure you only deduct the business-related portion. Staying organized and aware of common self-employment deductions can make a significant impact.

Hiring family members can lower taxable income while offering financial advantages for them. For sole proprietors, children under 18 are exempt from FICA and FUTA taxes, making their wages a cost-effective way to manage your tax liability.

Their earnings can also fund Roth IRAs, setting them up for long-term, tax-free growth. For spouses, wages may qualify for deductions while helping household income. However, this approach depends on the business structure and your state’s rules. Evaluate whether your business fits this strategy by reviewing state-specific tax opportunities.

The home office deduction allows entrepreneurs to offset costs like rent, utilities, and maintenance for spaces used exclusively for business. To qualify, the space must be regularly and solely dedicated to work. Simplifying your recordkeeping can help—consider using the IRS simplified method, which deducts $5 per square foot for up to 300 square feet. However, ensure you fully understand how this deduction applies to your setup by researching how entrepreneurs optimize deductions.

Section 179 offers businesses the chance to deduct the full cost of qualifying equipment and property in the year it’s placed in service. This applies to machinery, office furniture, and certain vehicles. For 2024, the limit is $1,220,000, with phase-outs starting at $3,050,000 in purchases.

The key here is to strategically time your purchases. For example, making investments during a high-income year can maximize your tax savings. Just like all of these tips, this goes back to the “planning” mentioned before. Take some time to understand Section 179 and then plan out your purchases accordingly.

Pass-through entities like LLCs, S Corporations, and partnerships can lower tax liability through various unique benefits. The Qualified Business Income (QBI) Deduction allows eligible businesses to deduct 20% of pass-through income, however, this will be phased out in 2025 (unless congress extends these rules).

Some states also offer Pass-Through Entity (PTE) Tax Elections, which allow businesses to deduct state and local taxes at the entity level, bypassing the $10,000 SALT cap. These provisions vary widely, so as always, meet with your CPA and plan ahead!

Tax planning isn’t something you do once and forget. It’s an ongoing and iterative process. Review your plan monthly and yearly and implement daily habits that keep you organized. Your plan includes deductions, strategic purchases, retirement saving strategies, and decisions about your business entity structure ( LLCs, S-Corp, or C-Corp etc.).. Each business has different considerations, and the strategies outlined here may or may not apply to your specific situation. As mentioned before, meeting with your CPA to develop a plan tailored to your goals is essential. Focus on proper documentation, regular reviews, and a forward-looking strategy.