Every tax season, we meet with small Colorado business owners to discuss ways they can reduce their taxes. Our tax strategies help owners take advantage of available credits and deductions while managing the timing of their revenue and expenses. We often find that small business owners don’t know all the possible deductions and credits made available to them at a federal and state level, so they unnecessarily leave money on the table. That’s where tax accountants and proactive tax planning helps.

Consider these five tips to reduce your tax burden and take advantage of the tax credits available.


1. Evaluate your tax status.


Small business owners have multiple ways to structure their business – sole proprietorship, partnership, limited liability company (LLC), S corporation or C corporation. The structure you choose impacts how you file business taxes.

If your business structure recently changed, consider making a tax status change, too. For example, an LLC can transition to a C corporation and take advantage of credits and deductions unavailable to other business entities. A corporate tax rate of 21% is much more appealing than some of the higher tax brackets in pass-through businesses.

Sole proprietorships, partnerships, LLCs and S corporations don’t pay a corporate income tax; the earnings are filed on the owner’s individual tax return. Those tax brackets can climb as high as 37%! So changing your tax filing status can help higher earners save. And, if you are worried about the Alternative Minimum Tax, don’t be. It only applies to C corps whose average annual income surpasses $1 billion.

Call us if you think now might be a good time to reconsider your business tax status. We can walk you through the pros and cons to determine the cost-benefits of doing so.


2. Maximize tax deductions


Despite the many rules and limitations, pass-through business owners can deduct a significant portion of their business income through the QBI deduction – Qualified Business Income. Some business owners – specific service trades or businesses – may not qualify if their income is too high, but you never know unless you ask. You might qualify if your business depends on your reputation or operating skill. Businesses such as consulting firms, artists, influencers, law firms, medical offices, and advisors fit into this category.

Even if your business isn’t an SSTB, you can still claim deductions when certain income parameters are met. Determining which deductions work for you and your business isn’t easy, so schedule a tax planning session and let’s discuss it in detail.


3. Leverage tax credits


Tax credits can also help businesses reduce their tax burden. Tax credits are different than deductions because instead of reducing taxable income, they reduce the amount of tax owed.


Work opportunity tax credit


The Work Opportunity Tax Credit (WOTC) was created to help employers hire and retain individuals from certain target groups who disproportionately face barriers to employment. These groups include military veterans, felons, and family members who receive benefits under the Temporary Assistance for Needy Families (TANF) program. There are specific timeframes employers and small business owners must take advantage of these credits, so it is important to schedule a tax planning call sooner than later.


Disabled access credit


The Disabled Access Credit (DAC) helps small businesses offset costs related to giving access to disabled individuals. Expense examples include modifying existing facilities to ADA standards, offering Braille or large print on resources and materials, offering audio versions for the visually impaired, providing a sign language interpreter or reader for customers or employees, or purchasing adaptive equipment.

Additional credits offered to small businesses include the Employee Retention Credit (ERTC), the Setting Every Community Up for Retirement Enhancement (SECURE) Act 2.0, and a credit for small employer health insurance premiums.


4. Defer — or accelerate — income


Many small businesses use the cash method of accounting on their books and tax returns. Under the cash method, a company recognizes income when it’s received and expenses when paid — when cash changes hands — creating some interesting tax planning strategies. If you believe you’ll be in a lower tax bracket next year, deferring your income this year might help. We can discuss the right times to defer or accelerate your income to decrease your tax burden.


5. Set up — or contribute to — a retirement account


Establishing or contributing toward a retirement account can help offset your taxable income. Whether you set up an account for yourself or your employees, benefits and tax credits are available. Give us a call to learn how much you can contribute to your own retirement plan, to the plans of your employees and how much you can contribute on their behalf. Several options are available depending on your employee count, business size and annualized revenue. It is best to schedule a tax planning session so we can determine what is best for you and your small business.

Every business’s tax situation is unique. Discussing these small business tax planning strategies before making significant changes is important. Give us a call and we can help walk you through the decisions and options. We look forward to learning more about you, your business and how Tax Time CPAs can help.