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Business Tax Savings Tips

Below you can find proven ways to save taxes as a business owner. Please consult a qualified tax professional if you need assistance in implementing strategies or have questions on how they work.

Home Office Deduction

If you regularly use part of your home exclusively for business, you can deduct associated expenses. Two methods are available:

Simplified method

  • $5 per square foot, up to 300 sq ft = maximum $1,500 deduction
  • No depreciation or recapture rules; easy to track

Regular method

  • Deduct a percentage of actual home expenses—mortgage interest, utilities, insurance, depreciation—based on your business-use square footage
  • Requires detailed records and Form 8829 reporting

Which method is better?

The simplified option is fast and fuss‑free; the regular method may yield more savings if major expenses or depreciation are involved. Choose based on paperwork comfort and deduction size.

Vehicle Expense Deduction

Use this if you drive for business (not commuting):

  • Standard mileage rate (2025): Use IRS-set per-mile rate (check IRS Publication 463 annually)
  • Actual expenses: Track fuel, maintenance, insurance, depreciation/business portion

Choose the higher of the two. Log business miles diligently. Publications such as 463 and 587 offer guidance.

Bonus Depreciation & Section 179 Expensing

Section 179 Deduction

Allows you to deduct the full purchase cost of qualifying property in the year placed in service, rather than depreciate it over time.

  • Limit for 2025: $1,250,000
  • Starts phasing out dollar-for-dollar above $3,130,000 in purchases
  • Includes equipment, machinery, and qualified improvements
  • SUVs have a separate limit of $31,300 for 2025

Bonus (100%) Depreciation

Applies to new and used qualifying assets under MACRS. Typically taken after Section 179. Grants immediate expensing of the remaining basis.

Tip: Use Section 179 for personal-use vehicles and bonus depreciation for larger assets. Check depreciation recapture rules before sale.

Retirement Plan Options

Retirement contributions not only secure your future, they also cut current taxable income.

Solo 401(k)

Ideal for sole proprietors or married couples with no employees.

  • Employee deferral (2025): $23,500
  • Catch-up (age 50–59 & 64+): +$7,500 = total $31,000
  • Super catch-up (age 60–63): +$11,250 = total contribution limit up to $34,750
  • Total limit (employee + employer): $70,000 including profit sharing

SEP IRA

Employer-sponsored plan; easy to set up and allows flexible annual contributions.

  • Limit (2025): Lesser of 25% of compensation or $70,000
  • Compensation cap used for calculation: $350,000
  • No employee deferrals or catch-up contributions
  • Must contribute same percentage for employees as yourself

Cash Balance Pension Plan

Best suited for high-income earners seeking large deductions.

  • Combines features of defined benefit plans and retirement accounts
  • Often allows contributions well over $100,000 annually depending on age, income, and plan design
  • Complex to establish; must be maintained with an actuary and incurs administrative fees

Contribution Deadlines & Filing Reminders

  • Employer retirement contributions (Solo 401(k)*, SEP IRA) must be made by the employer’s tax filing deadline (including extensions):
    • Individual filers: April 15, or October 15 if extended
    • S Corps and Partnerships: March 15, or September 15 if extended
    • C Corps: April 15, or October 15 if extended

Employee contributions need to be made by December 31 if paying wages via W-2 - Section 179 and bonus depreciation are claimed on Form 4562 with your tax return - Home office deduction regular method requires Form 8829* when claiming on Form 1040

Year-Round Planning Tips

  1. Track business miles using apps or logs to substantiate vehicle deductions
  2. Keep receipts for home office, equipment, and vehicle expenses
  3. Combine methods: use simplified home office, Section 179 for vehicles, and bonus depreciation for equipment to optimize deductions
  4. Plan retirement contributions early in the year
  5. Hire a professional to assess if a cash balance plan or combined strategy is best for you

Sample Tax-Savings Scenario

Emily, a consultant generating $200,000 net income in 2025:

  • Uses a 200 sq ft home office → $1,000 simplified deduction
  • Drives 10,000 business miles → $0.67 per mile = $6,700 deduction
  • Buys $50,000 in equipment → Claim Section 179 to deduct full cost
  • Sets up Solo 401(k): contributes $23,500 (employee) + $36,500 (employer) = maxed out $60,000
  • Net reduction in taxable income due to these moves: over $115,000

Final Takeaways

  • Combine home office, vehicle, equipment, and retirement strategies for powerful tax savings
  • Monitor IRS contribution and deduction limits—many are indexed annually
  • Use Section 179 and bonus depreciation to fully accelerate asset write-offs
  • Retirement accounts like Solo 401(k) and SEP IRA both reduce taxable income—choose based on contribution limits, flexibility, and employee involvement
  • Consider a cash balance plan if seeking ultra-high savings and tax deductions

Disclaimer: This content is for informational purposes only and should not be relied upon as tax or legal advice. Please consult a qualified tax professional to determine how these provisions apply to your unique situation.