5 practical tax strategies every small business should know

Simple ways to keep more of what your business earns

Tax season can be stressful, but it’s also an opportunity. With proper planning, small businesses can legally reduce their tax burden and free up resources for growth investments. The goal isn’t just to lower what you owe. It’s also to make thoughtful choices that benefit both your finances and your future.

Here are five approachable strategies every small-business owner should know.

1. Offer or set up a 401(k)

Retirement savings that benefit you and your team.

A 401(k) is more than a retirement plan. It can also be a valuable tax strategy. Contributions you make as an employer are usually deductible expenses, reducing your taxable income. Even the administrative costs of running a plan may be deductible.

Self-employed? You can set up a solo 401(k) to save for retirement while lowering your taxable income. With traditional 401(k)s, contributions are pretax (taxed later when withdrawn). Roth 401(k)s use after-tax contributions, meaning withdrawals in retirement are tax-free. The choice depends on whether it makes sense for you to pay taxes now or later.

2. Make use of available tax credits

Direct savings on your tax bill.

While deductions reduce taxable income, tax credits reduce the actual tax you owe – dollar for dollar. That makes them especially powerful.

• Some credits small businesses may qualify for include:Work Opportunity Tax Credit (WOTC): a federal tax credit available for hiring individuals from targeted groups
• Research Credit: a federal tax credit for businesses to improve products, processes, or technologies
• Energy-related credits: other federal tax incentives for making energyefficient upgrades

Check current IRS guidance or consult a tax professional to see which credits fit your situation.

3. Make charitable donations

Giving back while reducing taxes.

Charitable contributions let you support causes you care about and reduce taxable income at the same time. Cash contributions to qualified nonprofits can often be deducted, and donations of property are typically based on fair market value.

Keep accurate records of your giving and itemize correctly on your tax return. Done well, charitable giving strengthens your community while also providing a financial benefit. You’ll need to itemize these deductions on Schedule A of IRS Form 1040.

4. Track and deduct business expenses

Don’t leave money on the table.

Everyday business costs, such as office supplies, technology, marketing, professional services, or travel, can add up quickly. Many of these expenses are deductible, lowering your taxable income.

Good recordkeeping is key. Using accounting software, or dedicated business credit cards, makes it easier to categorize expenses and ensure you don’t miss out on potential savings.

M&T also has a checking account that’s made for business. It’s designed to help you separate personal and business expenses, stay on top of your books, and focus more on growth.

5. Consider depreciation for major purchases

Stretch the value of big investments.

If you buy equipment, vehicles, or property for your business, you may be able to deduct the cost gradually over time through depreciation. This allows you to spread out the tax benefit across several years instead of all at once.

Depreciation rules can be complex, but they’re worth exploring if you’ve made significant purchases. A tax professional can help you maximize this benefit while staying compliant.

Tax avoidance vs. tax evasion

A note on staying legal:

Reducing taxes legally is called tax avoidance, which is smart business. Crossing the line into tax evasion – misrepresenting or concealing information – is illegal.

The difference comes down to intent and accuracy. Be honest in reporting, keep solid records, and ask for help when needed.

Final thoughts

Minimizing taxes isn’t about loopholes, it’s about making informed, responsible choices. Whether you’re investing in retirement plans, using credits, donating to causes, tracking everyday expenses, or managing big purchases, each step can strengthen your business and your financial future.

Looking for ways to put business savings to work? Explore M&T Business Financing to see how flexible funding options can support your next stage of growth.