9 Ways Small Business Owners Can Save on Taxes in 2023

Whether you're just starting out or have been in business for years, tax breaks help.

Few things are more exhilarating or exhausting than owning a small business. You're the captain of the ship. Well, scratch that. You're often the captain, purser, production manager, engineer, deckhand, and cruise director. In other words, you do it all.

As you find yourself busy with the everyday activity of running a small business, it's easy to overlook taxes. Sure, you pay them, but you don't always have time to discover ways to legally save on the amount of taxes you pay. The idea is to end the year with more money in your company's checking account than you began with. 

Here, we offer nine ideas.

1. Bulk up retirement savings

Because you're a small business owner, you have access to several tax-advantaged retirement savings options. One is a Solo 401(k), often referred to as a "single-participant 401(k) plan." This plan allows you to save up to 100% of your income as an employee. That's up to the current annual limit of $20,500 if you're under age 50, or $27,000 if you're 50 or older. As the employer, you can contribute up to 25% of your wage.

For 2022, that means you can contribute a total of up to $61,000. That's $61,000 you don't have to pay taxes on until you make withdrawals in retirement.

While we're on the subject of retirement savings, you also have the opportunity to contribute to traditional and Roth IRAs.

2. Deduct your vehicle

If the nature of your business means you need to drive as part of your job, you can take either the standard mileage rate deduction or the actual expenses deduction. It means keeping careful records throughout the year but it can pay off.

If you do a great deal of driving for your business, consider buying a company vehicle. That way, you may deduct the entire cost of ownership and operation, subject to limits.

3. Donate to charity

Consider donating business assets to charity and taking the deduction. You'll feel good and save money on taxes.

4. Keep track of the cost of doing business

As a business owner, you're responsible for keeping things running. Many of those expenses can be deducted at tax time, including:

• Rent
• Utility costs
• Equipment
• Materials
• Supplies
• Shipping
• Employee salaries
• Subscriptions to business publications
• Domain and web hosting
• Marketing
• Independent contractors
• Bad debt
• Legal fees
• Travel fees
• Bookkeeper fees
• Accountant fees
• Tax consultant fees

5. Take advantage of the home office deduction

If your business involves working from home, the home office deduction can be a lifesaver. As long as you regularly use a portion of your home exclusively for business, nearly everything, from a portion of the interest paid on the property to utilities, is deductible.

6. Cover your health insurance

Paying your own health insurance premium may lower your taxes. If you can't receive health insurance coverage through a spouse or domestic partner, you may be able to deduct all or part of your insurance premiums, lowering your tax bill. This sweet deal extends to dental, vision, and even long-term care insurance premiums. Better yet, you can claim the deduction for your spouse and qualifying dependents age 26 or younger by the end of this year.

7. Create a health savings account

Contributions to a health savings account are tax-free, allowed to grow tax-free, and can reduce both taxes and future health costs.

8. Remember depreciation

As business assets age, their value depreciates. Take advantage of the ability to offset a portion of your income equivalent to the amount assets have depreciated. Because of the different rules associated with claiming this deduction, the subject can be tricky to navigate. This is where a great tax advisor is worth their weight in gold.

9. Financing costs

If you're paying interest and fees on money borrowed to start or grow the business, the IRS allows you to deduct most of it.

Owning a business involves a learning curve and shelling out a whole lot of cash. Thanks to IRS rules, though, you can recoup some of that money at tax time.