8 Tax Laws & Deductions Every Small Business Owner Should Know
Navigating small business taxes can be overwhelming, but knowing key laws and deductions can save you thousands while avoiding costly audits. This article highlights the most common tax risks and the top deductions business owners should leverage—with expert guidance to maximize savings and stay compliant
Inflation, rising labor costs, and other expenses are squeezing small businesses more than ever. The good news: with the right tax strategies, you can reduce your burden, avoid compliance pitfalls, and free up cash to reinvest in growth.
Understanding the Internal Revenue Code
At 3.5 million words, the Internal Revenue Code (IRC) is notoriously complex. Trying to interpret tax laws and deductions on your own often leads to mistakes—either overpaying, underpaying, or triggering an IRS audit.
Tax laws change frequently based on industry, geography, and even ownership status, which is why working with experts is essential. Our team of tax professionals has pulled together the most important laws and deductions every small business owner should know.
4 Tax Laws Every Business Owner Should Know
Even if you don’t prepare your own taxes, understanding these common areas of risk can help you avoid costly errors and penalties.
1. Worker Classification
Misclassifying employees as independent contractors to avoid payroll taxes or benefits is a red flag for the IRS. Consequences can include back taxes, fines, and reputational harm.
Best practice: Classify employees correctly—it’s legal, ethical, and helps maintain employee trust.
2. Payroll Taxes
Businesses must withhold and pay payroll taxes (FICA, income tax, Social Security, Medicare). Self-employed owners also owe a 15.3% combined tax rate. Missing deadlines, underpaying, or miscalculating quickly draws IRS attention.
Best practice: Stay current with filings and set aside funds in advance.
3. Personal vs. Business Expenses
Mixing personal and business expenses is a fast path to penalties. A $500 “client dinner” that’s really personal spending won’t hold up under IRS scrutiny.
Best practice: Keep expenses separate and consult a professional when in doubt.
4. Qualified Business Income Deduction (QBID)
This powerful deduction (up to 20% of qualified business income) is often misunderstood. With 14 categories of ineligible income and strict eligibility rules, claiming it incorrectly can trigger audits.
Best practice: Use QBID only when you’re certain you qualify—professional guidance is highly recommended.
4 Money-Saving Deductions to Leverage
While tax laws can feel restrictive, many deductions help reduce your taxable income and boost savings.
1. Business Insurance
Premiums for liability, property, or workers’ comp insurance may qualify as deductions. In some cases, self-employed health insurance premiums are also deductible.
2. Advertising & Marketing
From social ads to websites, marketing expenses are deductible if they’re reasonable and tied directly to business activities.
Tip: Ordinary social media ads will pass easily; extravagant, unrelated sponsorships may invite scrutiny.
3. Depreciation
Business assets like vehicles, equipment, and furniture lose value over time—but depreciation can be deducted under Section 179. Use IRS Form 4562 to calculate deductions.
Note: The asset must be owned by the business, income-producing, and eligible for depreciation.
4. Employee Benefits
Wages, bonuses, and benefits (like health insurance and retirement contributions) are deductible. Offering strong benefits not only reduces taxable income but also attracts top talent.
Example: With a written medical leave policy, you may qualify for a tax credit of 12.5%–25% of employee leave costs.
Maximizing Tax Savings While Reducing Risk
The principle is simple: plan strategically and claim legitimate deductions. In practice, however, tax rules shift every year—and vary by location, industry, and even workforce demographics.
That’s why working with trusted professionals matters. LedgerWay’s tax experts help small businesses:
- Maximize deductions without crossing compliance lines.
- Minimize risks of audits or penalties.
- Save time and focus on running their business.
Final Word
Small business taxes don’t have to be overwhelming. With the right guidance, you can reduce your burden, stay compliant, and unlock significant savings.
Ready to optimize your taxes? Connect with LedgerWay’s tax professionals today to see how much you could save next tax season.
