As tax season approaches, small business owners may benefit significantly from proactive planning. Understanding key deductions and strategies now reduces tax liability and minimizes last-minute stress and errors. By reviewing expenses, organizing records and consulting professionals early, business owners position themselves to take advantage of available tax benefits.
One of the most valuable tax deductions for small business owners is the qualified business income (QBI) deduction, which may allow eligible pass-through entities—such as sole proprietorships, partnerships, and S corporations—to deduct up to 20% of qualified business income. Eligibility and limitations depend on income level, business type and wages paid, so it is essential to evaluate this deduction well before filing. Proper structuring of compensation and income can make a meaningful difference.
Business owners operating in jurisdictions that impose pass-through entity taxes, including New Jersey, should also evaluate whether a pass-through entity tax election makes sense, as it can effectively restore the federal deductibility of state income taxes that would otherwise be limited at the individual level. For instance, New Jersey’s Business Alternative Income Tax (BAIT) provides that qualifying partnerships and S corporations may elect to pay state income tax at the entity level, thereby bypassing the federal state and local tax deduction cap by treating the tax as a deductible business expense rather than personal income tax.
Another critical area to review is business expense deductions. Ordinary and necessary expenses—such as office supplies, software subscriptions, advertising, professional fees and business insurance—are generally deductible. Business owners should ensure expenses are properly categorized and documented throughout the year. In addition, owners who work from home may qualify for a home office deduction, provided the space is used regularly and exclusively for business purposes, either under the simplified method or the actual expense method.
Small business owners should also consider bonus depreciation and Section 179 expensing for equipment, vehicles, and technology purchases. These provisions of the Internal Revenue Code may allow businesses to deduct the cost of qualifying assets more quickly—sometimes entirely in the year of purchase—rather than spreading deductions over several years. Timing purchases before year-end can be particularly advantageous but the impact on cash flow and future deductions should be carefully weighed.
Finally, retirement contributions and health-related deductions can deliver immediate and long-term benefits. Contributions to retirement plans such as SEP IRAs, Solo 401(k)s, or SIMPLE IRAs are often deductible and help build future financial security. Additionally, self-employed individuals may be eligible to deduct health insurance premiums and contribute to Health Savings Accounts. Reviewing these options in advance allows business owners to maximize contributions before filing deadlines and align tax savings with broader financial goals.
Michael Salad is an attorney in Cooper Levenson’s Business & Tax practice group. He concentrates his practice on estate and asset protection planning, probate and trust administration, special needs planning, business transactions, mergers and acquisitions and tax matters. Michael holds an LL.M. in Estate Planning and Elder Law. Michael is licensed to practice law in Florida, New Jersey, New York, Pennsylvania, Maryland, Connecticut, Georgia, Massachusetts, Alabama, Arizona, Virginia and the District of Columbia. Michael may be reached at (954) 889-1850 or via e-mail at msalad@cooperlevenson.com.
The content of this post should not be construed as legal advice. You should consult a lawyer concerning your particular situation and any specific legal question you may have.