Tax Tips for Small Business Owners | Practical Advice

The Tax Cuts and Jobs Act introduced a limitation that surprises many business owners who have a large loss year: the excess business loss limitation under IRC §461(l). In plain English, this rule can stop you from using all of your business loss against other income in the current year. That does not mean the loss disappears. It means part of the deduction may be delayed and carried forward. This is one of the reasons tax planning across years matters. A loss year is not jus

Pass-through losses from an S-Corp or partnership flow through to your personal return on Schedule K-1. But a K-1 loss doesn't automatically translate into a deduction. Multiple limitation systems — including basis, at-risk, and passive activity loss rules — can block or defer that deduction, sometimes for years. Understanding how these work prevents surprises on your return and helps you plan around them. Basis Limitations In an S-Corp or partnership, your ability to deduct

If you're self-employed and paying for your own health insurance, you may be entitled to deduct 100% of your premiums without itemizing. It's one of the few above-the-line deductions that directly reduces your adjusted gross income, which can ripple through your entire return—affecting other calculations on the return, including QBI in some cases, eligibility for certain credits, and ultimately your tax bill. Many business owners either miss this entirely or set it up incorre

Starting a business often means losing money before making it. The IRS actually accounts for this. The Net Operating Loss (NOL) rules allow you to offset future profitable years with losses from less profitable ones—which is one of the reasons tax planning across years matters more than looking at any single year in isolation. What Is an NOL? A Net Operating Loss can occur when allowable deductions exceed income for the year, after the NOL rules make specific adjustments. Not

S-Corp owners often pay for business expenses out of pocket—mileage, home office, phone, supplies—and then either forget to reimburse themselves or run expenses through the S-Corp account in ways that create tax problems. An accountable plan solves this. It's not complicated, but getting it wrong costs money, and most S-Corp owners either don't have one at all or have one that doesn't actually work. Why This Matters for S-Corp Owners Specifically Unlike a sole proprietor, an

Starting a business costs money before you make any. Market research, legal fees, training, licenses, state filing fees—all of this happens before you open. The IRS has specific rules for how these pre-opening costs are treated, and a lot of new business owners either miss the deduction entirely or get the timing wrong. Here's how it actually works. What Are Startup Costs? Startup costs are amounts paid or incurred to investigate the creation of an active business or to creat

There has been a lot of confusion around Form 1099-K over the last few years. For a long time, many small sellers and freelancers only received Form 1099-K if they had more than $20,000 in payments and more than 200 transactions through a third-party payment platform. Then the threshold became a moving target, which created a lot of panic and bad information online. But the more important point never changed: The 1099-K does not create the tax liability. The income does. If y

Retirement planning is one of the few areas where the tax code is genuinely trying to help you. As a self-employed business owner, you have access to retirement vehicles that allow you to contribute significantly more than a traditional employee—and, in many cases, deduct contributions within IRS limits. The three most common options for small business owners are the SEP-IRA, the Solo 401(k), and the SIMPLE IRA. Each one fits a different situation. SEP-IRA (Simplified Employe

construction workers Hiring someone as an independent contractor instead of an employee has real tax consequences — for both you and the worker. When the classification is wrong, the IRS can reclassify the relationship and assess back employment taxes, penalties, and interest. Worker misclassification is one of the IRS’s top enforcement priorities because it directly affects employment tax revenue. Why the Classification Matters If someone is an employee, you’re required to w

heavy duty bulldozer When you buy equipment, a vehicle, or technology for your business, you generally can’t deduct the full cost in the year you purchased it. Depreciation spreads the deduction over the asset’s useful life. But Section 179 and bonus depreciation let you accelerate that deduction — sometimes taking the entire cost in year one. Knowing when to use each method is a significant tax planning lever. Section 179: Full Expensing in Year One Section 179 allows you to

Meals, travel, and entertainment are three separate categories with three different sets of rules. Mixing them up — or failing to document them properly — is one of the most common ways small business owners lose deductions during an examination. Here’s what’s deductible in 2026 and exactly how to document each one. Business Meals: 50% Deductible Business meals are deductible at 50% of the cost. The temporary 100% deduction for restaurant meals that existed in 2021 and 2022 h

If you drive for business, you have a deduction available. The question is which method to use — the IRS standard mileage rate or actual vehicle expenses — and whether you’re documenting it well enough to survive scrutiny. Vehicle expenses are one of the most commonly examined deductions in small business audits because of the personal-use component. The 2026 Standard Mileage Rate For 2026, the IRS standard mileage rate for business driving is 72.5 cents per mile. That means

The home office deduction is one of the most commonly claimed — and most commonly questioned — deductions for small business owners. The IRS has specific rules about what qualifies, and they’re stricter than most people think. Getting it right means documenting your space and your usage. Getting it wrong means losing the deduction entirely during an examination. The Two Requirements: Regular and Exclusive Use To claim the home office deduction, your workspace must meet two te

You started selling things on Etsy. Or freelancing on the side. Or doing photography on weekends. It started as extra income, but now it’s generating real money. At some point, the IRS stops treating that activity as a hobby and starts treating it as a business — and the tax consequences of that distinction are significant. Here’s how the IRS draws the line, what factors they look at, and why getting this right matters for your deductions and your liability. Why the Distincti

The Section 199A Qualified Business Income (QBI) deduction was set to expire after 2025. It didn’t. The One Big Beautiful Bill Act made it permanent starting in 2026. If you own a pass-through business — sole proprietorship, S-Corp, partnership, or LLC — this deduction directly reduces your taxable income by up to 20% of your qualified business income. Here’s what the QBI deduction is, how it works, who qualifies, and what changed now that it’s permanent. What the QBI Deducti

If you’re self-employed or own a business that doesn’t withhold taxes from your income, the IRS expects you to pay taxes throughout the year — not just at filing time. These are quarterly estimated tax payments, and getting them wrong is one of the fastest ways to end up with a penalty you didn’t see coming. Here’s how estimated taxes actually work, when they’re due, how to calculate them, and how to avoid the most common mistakes. Who Needs to Pay Estimated Taxes If you expe

If you run an S-Corp, you’ve probably heard that you can save on self-employment taxes by paying yourself a “reasonable salary” and taking the rest as distributions. That’s true in concept. But the execution is where most S-Corp owners get into trouble — and it’s one of the most common issues flagged in S-Corp examinations. Having been on the IRS side of these examinations, I can tell you: the issue isn’t usually that an owner is paying themselves too little. The issue is tha

Filing a Schedule C can be a straightforward way for entrepreneurs and small business owners to report income and expenses. Yet, certain patterns and claims on this form often catch the IRS’s attention and increase the chance of an audit. Understanding these red flags can help you avoid unnecessary scrutiny and keep your business tax filings smooth. This post explores seven common Schedule C audit red flags, explaining why they raise questions and how you can address them. Wh

Keeping tax records organized and knowing how long to keep them can save you from headaches during an audit or when reconstructing your financial history. The IRS has specific rules about how long you should retain different types of tax documents. Understanding these rules helps you stay compliant and avoid unnecessary clutter. This post explains the IRS record retention guidelines, focusing on the standard statute of limitations, special cases, differences between business

Setting a reasonable salary for S-Corporation owners is one of the most critical tax issues these businesses face. Reasonable compensation is a recurring focus area in S-Corporation examinations because it directly affects employment tax reporting. Getting this wrong can lead to costly audits and penalties. This post breaks down what the IRS looks for, how to document your salary decisions, and why guessing a number can cause serious problems. IRS review of S-Corp salary docu