But the savvy entrepreneur will know that lowering your tax burden should be approached as a long term strategy that goes to the heart of your business structure, investments, and work methods.

Below are some fundamental long term business strategies and approaches that can help reduce your small business tax liability.

1. Select the Right Business Structure

Deciding on the right business structure for your company is a daunting task, but do it right and you can realize significant tax benefits. Start by educating yourself on the available structuring options and what the ramifications are for your business.

Choosing the right structure is a highly individual process that hinges on your current and anticipated finances and taxes. So it’s critical that you avoid making assumptions about the perceived tax savings associated with the various types of structures.  What might work for your cousin’s business may not apply to yours.  Read my blog post – Should I Incorporate My Small Business? – for more help on this topic.

The Small Business Administration (SBA) also offers a very useful Guide to Choosing a Small Business Structure that outlines the available options.  But before you do anything, get expert advice – talk to an accountant or tax consultant before making your final decision. Once you have made your decision you’ll need to register your business.

2. Take Advantage of Tax Deductions for Energy Efficiency

Not only can you get grants and loans from the government for making green upgrades to your business, you can get tax deductions and credits too.

A tax credit can provide significant savings by reducing the amount of income tax you have to pay. Unlike a deduction, which reduces the amount of income subject to tax, a tax credit directly reduces the tax itself.

Learn more about federal tax credits and state tax incentives for energy efficiency. You can also access more tools and resources for maximizing tax savings with the government’s Green Business Guide.

This article from NFIB also offers some great tips and tricks for greening your business with the latest technology.

3. Hire Independent Contractors

Using independent contractors instead of hiring employees can reduce your payroll taxes, which can often add 20-30 percent to payroll costs per employee.

These self-managed freelancers can help meet small business project deadlines or support specialized tasks such as marketing, IT, accounting, etc. They can also free you from many administrative tasks such as withholding taxes, benefits, etc.

Be cautious, however, as business owners can face costly penalties for misclassifying employees as independent contractors, and the definitions are not as black and white as they may seem. Read my earlier blog post – Working with Independent Contractors: Understanding Tax Requirements - to ensure your business is complying with government regulations regarding the classification and use of independent contractors.

4. Know Your Deductibles

From operating a home-based business to using your personal vehicle for company use, small business tax write offs can have many benefits, including lowering your taxable gross income and earned income, which may increase your earned income credit.

Whether you prepare your own taxes or work with a tax professional, the right amount of planning will get you all the deductions you deserve. The government offers straightforward guidance as to which expenses qualify as tax deductible. You can also check out my blog post – Tax Deduction 101 for Small Business – for more tips.

5. Talk To Someone Who Can Help

Starting your own business and operating it to ensure the maximum amount of profit within the law is quite often not possible without the help of a tax specialist or business advisor. Of course, these professionals can be expensive.

There are alternatives and it’s a good idea to seek out some of the free tax guidance and support offered by Uncle Sam. The government’s Business Gateway venture, through its Business.gov Web site, has many resources available that can help small business owners understand how best to take advantage of tax-lowering strategies.

In addition, there are many in-person or online resources available to the small business owner. Here’s a summary of a few:

• In-person Resources – The SBA provides free and low-cost business counseling, training, and development help across the U.S. Find one near you here. You can also take advantage of SBA resource partners including SCORE business advisors.
• Online Resources – IRS Small Business and Self-Employed Tax Center. More than just forms and tax payment guidance, this portal includes video and audio online learning about business taxes.
• Workshops and Programs – The IRS offers online and in-person training and workshops to help small business owners understand their tax obligations. Learn more here.

Home office energy efficiency

We all know times are tough right now and it’s not only consumers who are pinching pennies. Even businesses are tightening their belts. With this in mind, sometimes, being energy efficient means doing our part to help the environment but it also means saving ourselves – and our home businesses – valuable dollars. As usual, there are government resources available to provide direction and assistance to small and home business owners.

Energy Star

Virtually any small or home business can improve its energy efficiency easily and cost-effectively, using the numerous resources that are available both from Energy Star and a wide variety of other organizations. Energy Star is a joint program of the U.S. Environmental Protection Agency and the U.S. Department of Energy helping us all save money and protect the environment through energy efficient products and practices. Energy Star rates and recommends products that can save you – even putting a sticker on these products so you recognize them. But check out the site for lists of products, great tips, etc.

Home Business Energy Savings & Free Government Tools

Saving energy for your home-based business may seem like a challenge, but there are some simple, no-cost or low-cost steps you can take to reduce your energy bills by as much as 30%. Here are things you can do for free to save your home business money immediately:

• Turn up or turn back the thermostat during unoccupied times.
• Consider buying a programmable thermostat.
• Turn off lights or office equipment at night and over the weekend.
• Take advantage of daylight.
• Use e-mail instead for faxes and paper memos or letters.
• Disconnect unnecessary equipment.

There’s also a very easy, web-based energy efficiency tool. The Home Energy Saver is designed to help identify the best ways to save energy and find the resources to make the savings happen. The project is sponsored by the U.S. Department of Energy (DOE), as part of the national ENERGY STAR Program (mentioned above), for improving energy efficiency in homes, with previous support from the U.S. Environmental Protection Agency (EPA), the US Department of Housing and Urban Development’s PATH program, and the California Energy Commission’s Public Interest Energy Research (PIER) program.

Tax Credits

There are federal tax credits available, too. A tax credit can provide significant savings. It reduces the amount of income tax you have to pay. Unlike a deduction, which reduces the amount of income subject to tax, a tax credit directly reduces the tax itself. Tax credits are available for home builders, manufacturers, commercial buildings, and they are available on fuel efficient vehicles as well.

The US Department of Energy (Energy Efficiency and Renewable Energy) has a database that captures state and federal laws and incentives related to alternative fuels and vehicles, air quality, fuel efficiency, and other transportation-related topics. State-level information is updated annually after each state’s legislative session ends. To access state information on this site is simple – you just select a state from the map on the site. Federal information is updated after enacted legislation is signed into law. Select the Federal Incentives and Laws link to get the latest federal-level information.

Other References

Energy Savers Tips for Saving Money

Energy Savers in Spanish

Home Office Tips to Lower Energy Costs

Calculating Energy Savings